Lourdes Corporations 14 coupon rate semiannual payment 1000

Lourdes Corporation\'s 14% coupon rate, semiannual payment, $1,000 par value bonds, which mature in 10 years, are callable 6 years from today at $1,025. They sell at a price of $1,388.78, 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 two decimal places. years 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?

Solution

a.What is the best estimate of these bonds’ remaining life?

Likely to be called so 6years

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?

N = 6 * 2 = 12

PMT = 0.14/2 x $1000 = $70

PV = -1388.78, FV = 1025;

I/YR = 3.215% = 3.215(2) = 6.43%