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

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

Solutions

Expert Solution

Current price of bond is provided below.

Excel calculation is provided below.

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

KIC, Inc., plans to issue $7 million of bonds with a coupon rate of 7 percent...

KIC, Inc., plans to issue $7 million of bonds with a coupon rate of 7 percent and 20 years to maturity. The current market interest rates on these bonds are 9 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? Assume a par value of $1,000 and semiannual payments....

Jamestown, Inc., plans to issue $4 million of bonds with a coupon rate of 7 percent,...

Jamestown, Inc., plans to issue $4 million of bonds with a coupon rate of 7 percent, a par value of $1,000, semiannual coupons, and 10 years to maturity. The current market interest rate on these bonds is 6 percent. In one year, the interest rate on the bonds will be either 12 percent or 6 percent with equal probability. Assume investors are risk-neutral. If the bonds are noncallable, what is the price of the bonds today?

Assets, Inc., plans to issue $5 million of bonds with a coupon rate of 7 percent,...

Assets, Inc., plans to issue $5 million of bonds with a coupon rate of 7 percent, a par value of $1,000, semiannual coupons, and 30 years to maturity. The current market interest rate on these bonds is 6 percent. In one year, the interest rate on the bonds will be either 9 percent or 5 percent with equal probability. Assume investors are risk-neutral. a.If the bonds are noncallable, what is the price of the bonds today? b.If the bonds are...

KIC plans to issue $4m of bonds, coupon rate 7% and 30 yrs to maturity. Current...

KIC plans to issue $4m of bonds, coupon rate 7% and 30 yrs to maturity. Current market interest 8%. In one year, interest rate on the bonds will be either 8% or 6% with equal probability. If bonds are noncallable what is price of bonds today? Assume par $1000 and Semi-Annual payments.

Company ABC plans to issue the following bond: coupon rate of 6 percent, paid semiannually, and...

Company ABC plans to issue the following bond: coupon rate of 6 percent, paid semiannually, and a face value of $1,000. The bonds will mature in 5 years and will be sold at $985.87. Given this, which one of the following statements is correct? The bond is currently selling at a premium The coupon rate < yield to maturity The coupon rate > yield to maturity The current yield equals to yield to maturity

Williams Company plans to issue bonds with a face value of $605,500 and a coupon rate...

Williams Company plans to issue bonds with a face value of $605,500 and a coupon rate of 4 percent. The bonds will mature in 10 years and pay interest semiannually every June 30 and December 31. All of the bonds are sold on January 1 of this year. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided. Round your final answer to whole dollars.) Determine the issuance price...

Trew Company plans to issue bonds with a face value of $908,500 and a coupon rate...

Trew Company plans to issue bonds with a face value of $908,500 and a coupon rate of 6 percent. The bonds will mature in 10 years and pay interest semiannually every June 30 and December 31. All of the bonds are sold on January 1 of this year. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided. Round your final answers to nearest whole dollar amount.) Determine...

Homer Homer plans to issue a bond that pays 6.66 percent coupon bonds with semiannual payments...

Homer Homer plans to issue a bond that pays 6.66 percent coupon bonds with semiannual payments and a yield to maturity of 7.24 percent. The bonds mature in seven years and have a face value of $1,000. What is the market price of the bond?

ABC plc plans to issue bonds with a face value of £10,000 each, coupon rate of...

ABC plc plans to issue bonds with a face value of £10,000 each, coupon rate of 4 percent, paid annually, and 10 years to maturity. The current market interest rate on similar bonds is 4 percent. In one years’ time, the long-term interest rate for this type of bond is predicted to be either 5 percent or 3 percent with equal probability. Assume investors are risk-neutral. a. If the bonds are non-callable, what is the price of the bonds today,...

Green Manufacturing, Inc., plans to announce that it will issue $6 million of perpetual debt and...

Green Manufacturing, Inc., plans to announce that it will issue $6 million of perpetual debt and use the proceeds to repurchase common stock. The bonds will sell at par with a 4 percent annual coupon rate. Green is currently an all-equity firm worth $10 million with 700,000 shares of common stock outstanding. After the sale of the bonds, Green will maintain the new capital structure indefinitely. Green currently generates annual pretax earnings of $4 million. This level of earnings is...

Subjects