Lourdes Corporation's 12% coupon rate, semiannual payment, $1,000 par value bonds, which mature in 30 years, are callable 3 years from today at $1,050. They sell at a price of $1,187.45, 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. yearsIf 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?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.Since the bonds are selling at a premium, the coupon rate should be set at the going rate, which is the YTC.Since the bonds are selling at a premium, the coupon rate should be set at the going rate, which is the YTM.Since Lourdes wishes to issue new bonds at par value, the coupon rate set should be the same as that on the existing bonds.Since Lourdes wishes to issue new bonds at par value, the coupon rate set should be the same as the current yield on the existing bonds.

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Answered: Lourdes Corporation's 12% coupon rate,…

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter19: The Basic Tools Of Finance

Section: Chapter Questions

Problem 1CQQ

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Lourdes Corporation's 12% coupon rate, semiannual payment, $1,000 par value bonds, which mature in 30 years, are callable 3 years from today at $1,050. They sell at a price of $1,187.45, 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 to use debt financing, what coupon rate would it have to set in order to issue new bonds at par?
1. 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.
2. Since the bonds are selling at a premium, the coupon rate should be set at the going rate, which is the YTC.
3. Since the bonds are selling at a premium, the coupon rate should be set at the going rate, which is the YTM.
4. Since Lourdes wishes to issue new bonds at par value, the coupon rate set should be the same as that on the existing bonds.
5. Since Lourdes wishes to issue new bonds at par value, the coupon rate set should be the same as the current yield on the existing bonds.

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