Multiple Choice
A firm wishes to issue a perpetual callable bond. The current interest rate is 6%. Next year, there is a 30% chance that the interest rate will be 4.5% and a 70% chance that the rate will be 8.0%. The
Bond is callable at €1,000 plus an additional coupon payment and it will be called if the interest rate
Drops to 4.5%.
What is the bond's value today if the coupon is set at €70?
A) €935.75
B) €946.70
C) €950.00
D) €980.00
E) €982.55
Correct Answer:
Verified
Correct Answer:
Verified
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