Suppose a perpetual annual coupon payable bond. Current interest rate is 9%. Next year, there...
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Suppose a perpetual annual coupon payable bond. Current interest rate is 9%. Next year, there is a 35% probability that interest rates will increase to 11.5%, and there is a 65% probability that interest rates will fall to 7%. The bond is callable if the price of the bond is at 11.5% high from the par. Assume that if interest rates fall the bond will be called. If the bond sells at $1.020, what should be the coupon rate
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