In: Finance
Lourdes Corporation's 15% coupon rate, semiannual payment,
$1,000 par value bonds, which mature in 30 years,...
Lourdes Corporation's 15% coupon rate, semiannual payment,
$1,000 par value bonds, which mature in 30 years, are callable 3
years from today at $1,025. They sell at a price of $1,245.45, and
the yield curve is flat. Assume that interest rates are expected to
remain at their current level.
- What is the best estimate of these bonds' remaining life? Round
your answer to the nearest whole number.
years
- 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 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 should be set the same as that on the existing
bonds.
- Since Lourdes wishes to issue new bonds at par value, the
coupon rate should be set 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.