Question
Bandon Manufacturing intends to issue callable, perpetual bonds with annual coupon payments and a par value of $1,000. The bonds are callable at $1,210.
Bandon Manufacturing intends to issue callable, perpetual bonds with annual coupon payments and a par value of $1,000. The bonds are callable at $1,210. One-year interest rates are 9 percent. There is a 60 percent probability that long-term interest rates one year from today will be 9 percent, and a 40 percent probability that they will be 7 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? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Coupon rate %
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Financial Accounting
Authors: Robert Libby, Patricia Libby, Frank Hodge
9th edition
290-1259222138, 1259222136, 978-1259222139
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