A firm has an outstanding perpetual bond with a par value of $1,000 that can be called in one year at a call price of $1,260. The bond has a coupon rate of 8%, paid quarterly, and has a yield to maturity of 8%. In one year the yield to maturity may change. There is a 23% chance that the yield to maturity will increase to 10%, a 30% chance that the yield to maturity decreases to 5.9%, and a 47% chance that the yield to maturity will not change. What is the current market price of the bond? Enter the bond price rounded to two decimal places (E.g., 1050.55).

A firm has an outstanding perpetual bond with a par value of $1,000 that can be called in one year at a call price of $1,260. The bond has a coupon rate of 8%, paid quarterly, and has a yield to maturity of 8%. In one year the yield to maturity may change. There is a 23% chance that the yield to maturity will increase to 10%, a 30% chance that the yield to maturity decreases to 5.9%, and a 47% chance that the yield to maturity will not change. What is the current market price of the bond? Enter the bond price rounded to two decimal places (E.g., 1050.55).

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 8MC: Suppose a 10-year, 10% semiannual coupon bond with a par value of 1,000 is currently selling for...

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