What coupon rate should the bonds have in order

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Bowden Manufacturing intends to issue callable, perpetual bonds with annual coupon payments. The bonds are callable at $1,175. One-year interest rates are 9%. There is a 60% profitability that long-term interest rates one year from today will be 10%, and a 40% profitability that they will be 8%. 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?

Reference no: EM133001284

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