Williams Industries has decided to borrow money by issuing perpetual bonds with a coupon rate of 6.5%, payable annually, and a par value of $1,000.  The 1-year interest rate is 6.5%.  Next year, there is a 35% probability that interest rates will increase to 8% and a 65% probability that they will fall to 5%.   What will the market value of these bonds be if they are noncallable?

Essentials Of Investments
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ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Chapter1: Investments: Background And Issues
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Williams Industries has decided to borrow money by issuing perpetual bonds with a coupon rate of 6.5%, payable annually, and a par value of $1,000.  The 1-year interest rate is 6.5%.  Next year, there is a 35% probability that interest rates will increase to 8% and a 65% probability that they will fall to 5%.

 

What will the market value of these bonds be if they are noncallable?

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