Manufacturing intends to issue callable-perpetual bonds

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Bowdeen Manufacturing intends to issue callable, perpetual bonds with annual coupon payments. The bonds are callable at $1,200. 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 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? Assume a par value of $1,000. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Coupon rate at par value _____ %

Reference no: EM131954812

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