Assets incorporated plans to issue $6 million of bonds with a coupon rate of 7.8 percent,a par value of $1000,Semiannual coupons and 25 years to maturity.The current market interest rate on these bonds is 7.1 percent In one year the interest rate on the bonds will be either 9 percent or 5 percent with equal probability.Assume investors are risk -neutral.
a.If the bonds are noncallable what is the price of the bonds today?
b.if the bonds are callable one year from today at $1060,will their price be greater or less than the price you computed in part (a)