28 Bond Refunding Mobistar intends to issue callable, perpetual bonds with annual coupon payments.

The bonds are callable at €12,500. One-year interest rates are 6 per cent. There is a 60 per cent probability that long-term interest rates one year from today will be 9 per cent, and a 40 per cent probability that longterm interest rates will be 4 per cent. Assume that if interest rates fall the bonds will be called. What coupon rate should the bonds have in order to sell at par value?