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Lourdes Corporation's 14% coupon rate, semiannual payment, $1,000 par value bonds, which mature in 30 years, are callable 6 years from today at $1,075. They sell at a price of $1,422.83, and the yield curve is flat. Assume that interest rates are expected to remain at their current level. a. What is the best estimate of these bonds' remaining life? Round your answer to the nearest whole number. years b. 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? I. Since the bonds are selling at a premium, the coupon rate should be set at the going rate, which is the YTC. II. Since the bonds are selling at a premium, the coupon rate should be set at the going rate, which is the YTM. III. Since Lourdes wishes to issue new bonds at par value, the coupon rate should be set the same as that on the existing bonds. IV. 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. V. 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. -Select-

Lourdes Corporation's 14% coupon rate, semiannual payment, $1,000 par value bonds, which mature in 30 years, are callable 6 years from today at $1,075. They sell at a price of $1,422.83, and the yield curve is flat. Assume that interest rates are expected to remain at their current level. a. What is the best estimate of these bonds' remaining life? Round your answer to the nearest whole number. years b. 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? I. Since the bonds are selling at a premium, the coupon rate should be set at the going rate, which is the YTC. II. Since the bonds are selling at a premium, the coupon rate should be set at the going rate, which is the YTM. III. Since Lourdes wishes to issue new bonds at par value, the coupon rate should be set the same as that on the existing bonds. IV. 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. V. 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. -Select-

EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter6: Fixed-income Securities: Characteristics And Valuation
Section: Chapter Questions
Problem 17P
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Lourdes Corporation's 14% coupon rate, semiannual payment, $1,000 par value bonds, which mature in 30 years, are callable 6 years from today at $1,075. They sell at a price of $1,422.83, and the yield curve is flat. Assume that interest rates are expected to remain at their current level. a. What is the best estimate of these bonds' remaining life? Round your answer to the nearest whole number. years b. 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? I. Since the bonds are selling at a premium, the coupon rate should be set at the going rate, which is the YTC. II. Since the bonds are selling at a premium, the coupon rate should be set at the going rate, which is the YTM. III. Since Lourdes wishes to issue new bonds at par value, the coupon rate should be set the same as that on the existing bonds. IV. 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. V. 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. -Select- ✓
Transcribed Image Text:Lourdes Corporation's 14% coupon rate, semiannual payment, $1,000 par value bonds, which mature in 30 years, are callable 6 years from today at $1,075. They sell at a price of $1,422.83, and the yield curve is flat. Assume that interest rates are expected to remain at their current level. a. What is the best estimate of these bonds' remaining life? Round your answer to the nearest whole number. years b. 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? I. Since the bonds are selling at a premium, the coupon rate should be set at the going rate, which is the YTC. II. Since the bonds are selling at a premium, the coupon rate should be set at the going rate, which is the YTM. III. Since Lourdes wishes to issue new bonds at par value, the coupon rate should be set the same as that on the existing bonds. IV. 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. V. 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. -Select- ✓
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