Bond Refunding Bowdeen Manufacturing intends to issue callable, perpetual bonds with annual coupon payments. The bonds are
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Bond Refunding Bowdeen Manufacturing intends to issue callable, perpetual bonds with annual coupon payments. The bonds are callable at $1,250. One-year interest rates are 11 percent.
There is a 60 percent probability that long-term interest rates one year from today will be 13 percent, and a 40 percent probability that long-term interest rates will be 9 percent. 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? LO.1
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