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Z Manufacturing intends to issue callable, perpetual bonds w/ annual coupon payments. The bonds are callable...

Z Manufacturing intends to issue callable,
perpetual bonds w/ annual coupon payments.

The bonds are callable at $1,250.
One-year interest rates are 11 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 they will be 9 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?

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jeff jeffy answered 2 years ago
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