Solved: What must the coupon on the bonds be for bowdeen, Finance Basics

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What must the coupon on the bonds be for bowdeen

Question: Bowdeen Manufacturing intends to use callable perpetual bonds. The bonds are callable at $1,250. One-year interest rates are 12%. There is a 60$ probability that long-term interest rates one year from today will be 15%. With a 40% probability, long term interest rates will be 8%. To simplify the firm's accounting, Bowdeen would like to issue the bonds at par ($1,000). What must the coupon on the bonds be for Bowdeen to be able to sell them at par?

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