A previously issued A2, 15-year industrial bond provides a return three-fourths

Question

A previously issued A2, 15-year industrial bond provides a return three-fourths higher than the prime interest rate of 8 percent. Previously issued A2 public utility bonds provide a yield of three-fourths of a percentage point higher than previously issued A2 industrial bonds of equal quality. Finally, new issues of A2 public utility bonds pay one-half of a percentage point more than previously issued A2 public utility bonds. What should be the interest rate on a newly issued A2 public utility bond? (Do not round intermediate calculations. Input your answer as a percent rounded to 3 decimal places.)

Interest rate

Explanation / Answer

A2 industrial would b provide return higher than 3/4 of prime interets rate =3/4*8 = 6% +8% =14%

A2 public utiltiy woudl provide yield of 3.4th higher than A2 industrial = 14% + 3/4*1%

=14.75%

Newly isuued pblic utility 1/2 percentage higher than A2 publci

= 14.75% +0.5%

=15.25%

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