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Expected interest rate Lourdes Corporation's 14% coupon rate, semiannual payment, $1,000 par value bonds, which mature in 20 years, are callable 3 years from today
Expected interest rate
Lourdes Corporation's 14% coupon rate, semiannual payment, $1,000 par value bonds, which mature in 20 years, are callable 3 years from today at $1,050. They sell at a price of $1,242.24, and the yield curve is flat. Assume that interest rates are expected to remain at their current level.
- a.What is the best estimate of these bonds' remaining life? Round your answer to two decimal places.years
- b.If Lourdes plans to raise additional capital and wants to use debt financing, what coupon rate would it have to set in order to issue new bonds at par?
- Since Lourdes wishes to issue new bonds at par value, the coupon rate set should be the same as the current yield on the existing bonds.
- Since interest rates have risen since the bond was first issued, the coupon rate should be set at a rate above the current coupon rate.
- Since the bonds are selling at a premium, the coupon rate should be set at the going rate, which is the YTC.
- Since the bonds are selling at a premium, the coupon rate should be set at the going rate, which is the YTM.
- Since Lourdes wishes to issue new bonds at par value, the coupon rate set should be the same as that on the existing bonds.
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