KIC, plans to issue $5 million of perpetual bonds.  The face value of
each bond is $1,000.  the annual coupon on the bonds is 12 percent. 
Market interest rates on one-year bonds are 11 percent.  With equal
probability, the long-term market interet rate will be either 14
percent or 7 percent next year.  Assume investors are risk-neutral. 
a.  If the KIC bonds are noncallable, what is th eprice of the bonds? 
b. If the bonds are callable one year from today at $1,450, will their
price be greater than or less than the price you computed in (a) Why? 
(show work)

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http://answers.google.com/answers/threadview?id=551844