Problem:
Absalom Motors's 14% coupon rate, semiannual payment, $1,000 par value bonds that mature in 30 years are callable 6 years from now at a price of $800. The bonds sell at a price of $1,150, and the yield curve is flat.
Required:
Question: Assuming that interest rates in the economy are expected to remain at their current level, what is the best estimate of the nominal interest rate on new bonds?
Note: Provide support for your rationale.