Frusciante, Inc. has 325,000 bonds outstanding

Frusciante, Inc. has 325,000 bonds outstanding. The bonds have a par value of $1,000, a coupon rate of 6.7 percent paid semiannually, and 13 years to maturity. The current YTM on the bonds is 7.1 percent. The company also has 11.5 million shares of stock outstanding, with a market price of $16 per share. What is the company’s market value debt-equity ratio? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.)

  Debt-equity ratio   

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KIC, Inc., plans to issue $7 million of bonds with a coupon rate of 10 percent and 15 years to maturity. The current market interest rates on these bonds are 9 percent. In one year, the interest rate on the bonds will be either 12 percent or 6 percent with equal probability. Assume investors are risk-neutral.

a.If the bonds are noncallable, what is the price of the bonds today? Assume a par value of $1,000 and semiannual payments. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

  Price of the bonds$      

b.If the bonds are callable one year from today at $1,150, will their price be greater or less than the price you computed in part a?

   Less thanGreater than

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