A company issues a $1,000 perpetual bond. The current rate is6%. Next period, the rate
will change to either 4% or 10%, with equal probability. Thebond is callable at the end
of the first year only, for a price of $1,117.90. What is thecoupon amount, if the bond
sells at par?
The answer is $83.51. Please show how this wasreached.
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