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New Business Ventures, Inc., has an outstanding perpetual bond with a coupon rate of 11 percent that can be called in one year. The bond makes annual coupon payments. The call premium is set at $125 over par value. There is a 60 percent chance that the interest rate in one year will be 13 percent, and a 40 percent chance that the interest rate will be 9 percent. If the current interest rate is 11 percent, what is the current market price of the bond? Assume a par value of $1,000.

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Financial Management, Finance

Category:- Financial Management
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