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Suppose a 15-year maturity, annual coupon payable bond. Current interest rate is 11%. Next year,...

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Accounting

Suppose a 15-year maturity, annual coupon payable bond. Current interest rate is 11%. Next year, there is a 40% probability that interest rates will increase to 13%, and there is a 60% probability that interest rates will fall to 8%. The bond is callable if the price of the bond is at 20% high from the par. Assume that if interest rates fall the bond will be called. If the bond sells at par, what should be the coupon rate?

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