Valuing callable bonds, Financial Accounting

Valuing Callable Bonds:

Bowdeen Manufacturing intends to issue callable, perpetual bonds with annual coupon payments. The bonds are callable at $1,350. One-year interest rates are 12 percent. There is a 40 percent probability that long-term interest rates one year from today will be 17 percent, and a 60 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 include the percent sign (%). Round your answer to 2 decimal places. (e.g., 32.16))

Coupon rate _____ %


Posted Date: 3/29/2013 4:13:54 AM | Location : United States

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