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A company has outstanding $100 mill (par value) bonds that pay an annual coupon of interest of 10.5 %. Par value of each bond is $1,000. The bonds a scheduled to mature in 20 years. Because of the company's increased risk, investors now require 14% rate of return on bonds on similar quality with 20 years remaining until maturity. The bonds are collable at 110% of par at the end of 10 years.

a. What price would the bonds sell assuming investors do not expect them to be called?

b. What price would the bonds sell assuming investors expect them to be called at the end of 10 years?

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