Valuing callable bonds, Financial Accounting

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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.

Required:
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 _____ %

 


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