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Bond refunding

kic inc. plans to issue $5 million of perpetual bonds. The face value of each bond is $1000. The annual coupon on the bonds is 12% . Market interest rates on one year bonds are 11% with equal probability, the long term market interest rate will be either 14% or 7% next year. Assume investors are risk nuetral.
a) If the kic bonds are noncallable, what is the price of the bonds?
b) If the bonds are callable 1 year from today at $1450 will their price be greater than the price computed in (a), why?

shadabada1 Tue 23/09/08 08:31

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shomer42
Tue 23/09/08
16:08

yes I am single, though I don't know why with my wit and charm. I do have a limp, and a squinty eye, but that only flares up in cold weather. I am a keen reader and enjoy long walks on a cold day (subject to squinty eye conditions).

My only real bad points are that I misunderstand the meaning of questions. Hello???

Gok Wan
Tue 23/09/08
22:21

The answers you need are as follows:

a) £26.95

b) Yes, because the Japanese don't like camels and that affects the share price of the giraffes in year 2.

Markandshez
Thurs 25/09/08
15:07

Don't you love the return to school times?- Half term soon and we can relax for a week

squarebear
Thurs 25/09/08
15:09

Us doing your schoolwork for you will not benefit you in the long run. I suggest you pay more attention in class and study your text books a little more.

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