Bowdeen Manufacturing intends to issue callable, perpetual bonds with annual coupon payments. The bonds are callable at $1,250. One-year interest rates are 12 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 11 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. Round the final answer to 2 decimal places.) Coupon rate at par value
Bowdeen Manufacturing intends to issue callable, perpetual bonds with annual coupon payments. The bonds are callable at $1,250. One-year interest rates are 12 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 11 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. Round the final answer to 2 decimal places.) Coupon rate at par value
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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Transcribed Image Text:Bowdeen Manufacturing intends to issue callable, perpetual bonds with
annual coupon payments. The bonds are callable at $1,250. One-year
interest rates are 12 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 11 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. Round the final answer to 2 decimal places.)
Coupon rate at par value
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