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-

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Lourdes Corporation's 10% 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 $1,211.19, and the yield curve is flat. Assume that interest rates are expected to remain at their current level. What is the best estimate of these bonds' remaining life? Round your answer to the nearest whole number. years If Lourdes plans to raise additional capital and wants
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