Question:
A previously issued Aal, 20-year industrial bond provides a return on-fourth higher than the prime interest rate assumed to be at 8%. Previously issued public utility bonds provide a yield of three-fourths of a percentage point higher than previously issued industrial bonds of equal quality. Finally, new issues of AAl public utility bonds pay one-fourth of a percentage point more than previously issued public utility bonds.
What should the interest rate be on a newly issue AAL public utility bond?