Bandon Manufacturing intends to issue callable, perpetual bonds with annual coupon payments and a par value of $1,000. The bonds are callable at $1,140. One-year interest rates are 9 percent. There is a 60 percent probability that long-term interest rates one year from today will be 10 percent and a 40 percent probability that they will be 8 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.)
Bandon Manufacturing intends to issue callable, perpetual bonds with annual coupon payments and a par value of $1,000. The bonds are callable at $1,140. One-year interest rates are 9 percent. There is a 60 percent probability that long-term interest rates one year from today will be 10 percent and a 40 percent probability that they will be 8 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.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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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 $1,140. One-year interest rates are 9 percent. There is a 60 percent probability that long-term interest rates one year from today will be 10 percent and a 40 percent probability that they will be 8 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.)
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