Problem 15-10 Valuing Callable Bonds
Bandon Manufacturing intends to issue callable, perpetual bonds with annual coupon payments
and a par value of $1,000. The bonds are callable at $1,220. One-year interest rates are 10
percent. There is a 60 percent probability that long-term interest rates one year from today will
be 12 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? (Do not round intermediate calculations and enter your answer as a percent rounded to 2
decimal places, e.g., 32.16.)
Bandon Manufacturing intends to issue callable, perpetual bonds with annual coupon payments
and a par value of $1,000. The bonds are callable at $1,220. One-year interest rates are 10
percent. There is a 60 percent probability that long-term interest rates one year from today will
be 12 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? (Do not round intermediate calculations and enter your answer as a percent rounded to 2
decimal places, e.g., 32.16.).
Problem 15-10 Valuing Callable BondsBandon Manufacturing intends t.pdf
1. Problem 15-10 Valuing Callable Bonds
Bandon Manufacturing intends to issue callable, perpetual bonds with annual coupon payments
and a par value of $1,000. The bonds are callable at $1,220. One-year interest rates are 10
percent. There is a 60 percent probability that long-term interest rates one year from today will
be 12 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? (Do not round intermediate calculations and enter your answer as a percent rounded to 2
decimal places, e.g., 32.16.)
Bandon Manufacturing intends to issue callable, perpetual bonds with annual coupon payments
and a par value of $1,000. The bonds are callable at $1,220. One-year interest rates are 10
percent. There is a 60 percent probability that long-term interest rates one year from today will
be 12 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? (Do not round intermediate calculations and enter your answer as a percent rounded to 2
decimal places, e.g., 32.16.)
