Assets, Inc., plans to issue $8 million of bonds with a coupon rate of 7 percent, a par value of $1,000, semiannual coupons, and 15 years to maturity. The current market interest rate on these bonds is 10 percent. In one year, the interest rate on the bonds will be either 8 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 today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Price of the bonds

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Assets, Inc., plans to issue $8 million of bonds with a coupon rate of 7 percent, a par
value of $1,000, semiannual coupons, and 15 years to maturity. The current market
interest rate on these bonds is 10 percent. In one year, the interest rate on the bonds will
be either 8 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 today? (Do not round
intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Price of the bonds
Transcribed Image Text:Assets, Inc., plans to issue $8 million of bonds with a coupon rate of 7 percent, a par value of $1,000, semiannual coupons, and 15 years to maturity. The current market interest rate on these bonds is 10 percent. In one year, the interest rate on the bonds will be either 8 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 today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Price of the bonds
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