Market value of these bonds be if they are noncallable

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Illinois Industries has decided to borrow money by issuing perpetual bonds with a coupon rate of 9.5 percent, payable annually. The one-year interest rate is 9.5 percent. Next year, there is a 45 percent probability that interest rates will increase to 12 percent, and there is a 55 percent probability that they will fall to 7 percent.

a. What will the market value of these bonds be if they are noncallable? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Reference no: EM131016132

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