Bond refunding

[shadabada1]

kic inc. plans to issue $5 million of perpetual bonds. The face value of each bond is $1000. The annual coupon on the bonds is 12% . Market interest rates on one year bonds are 11% with equal probability, the long term market interest rate will be either 14% or 7% next year. Assume investors are risk nuetral.
a) If the kic bonds are noncallable, what is the price of the bonds?
b) If the bonds are callable 1 year from today at $1450 will their price be greater than the price computed in (a), why?

[shomer42]

yes I am single, though I don't know why with my wit and charm. I do have a limp, and a squinty eye, but that only flares up in cold weather. I am a keen reader and enjoy long walks on a cold day (subject to squinty eye conditions).

My only real bad points are that I misunderstand the meaning of questions. Hello???

[Gok Wan]

The answers you need are as follows:

a) �26.95

b) Yes, because the Japanese don't like camels and that affects the share price of the giraffes in year 2.

[Markandshez]

Don't you love the return to school times?- Half term soon and we can relax for a week

[squarebear]

Us doing your schoolwork for you will not benefit you in the long run. I suggest you pay more attention in class and study your text books a little more.