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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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Solution Coupon rate Answer 815 Working In this sum its said that assume that if interest rates fall the bond will be called but in reality the bonds ... blur-text-image

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