View the step-by-step solution to: Lackner Bros. has 12 percent semiannual bonds outstanding which

Lackner Bros. has 12 percent semiannual bonds outstanding which mature in 10
years. Each bond is now eligible to be called at a call price of $1,060. If the bonds
are called, the company must replace the bonds with new 10-year bonds. The
flotation cost of issuing new bonds is estimated to be $45 per bond. How low would
the yield to maturity on the new bonds has to be, in order for it to be profitable to
call the bonds today? (That is, what is the "breakeven rate"?)

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