KIC, Inc., plans to issue $5 million of bonds with a coupon rate
of 8 percent and 20 years to maturity. The current market interest
rates on these bonds are 7 percent. In one year, the interest rate
on the bonds will be either 12 percent or 4 percent with equal
probability. Assume investors are risk-neutral.
| a. |
If the bonds are noncallable, what is the price of the bonds |
| Price of the bonds | $ |
| b. |
If the bonds are callable one year from today at $1,150, will |
multiple choice
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