KIC, Inc., plans to issue $4 million of bonds with a coupon rate of 6 percent...

KIC, Inc., plans to issue $4 million of bonds with a coupon rate of 6 percent and 20 years to maturity. The current market interest rates on these bonds are 11 percent. In one year, the interest rate on the bonds will be either 10 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? Assume a par value of $1,000 and semiannual payments. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Price of the bonds

$

b.

If the bonds are callable one year from today at $1,040, will their price be greater or less than the price you computed in part a?

	Greater than
	Less than

Expert Solution

Current price of bond is provided below.

Excel calculation is provided below.

jeff jeffy answered 1 year ago

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