Question:
Absalom Motors's 14% coupon rate, semiannual payment, $1,000 par value bonds that mature in 15 years are callable 3 years from now at a price of $1,075. The bonds sell at a price of $1,352.47, and the yield curve is flat. Assuming that interest rates in the economy are expected to remain at their current level,
Required:
Question: What is the best estimate of the nominal interest rate on new bonds?
Note: Please explain comprehensively and give step by step solution.