Rainier Bros. has 12.0% semiannual coupon bonds outstanding that mature in 10 years. Each bond has a par value of $1,000 and is now eligible to be called at $1,060. If the bonds are called, the company must replace them with new 10 year bonds.

Rainier Bros. has 12.0% semiannual coupon bonds outstanding that mature in 10 years. Each bond has a par value of $1,000 and is now eligible to be called at $1,060. If the bonds are called, the company must replace them with new 10 year bonds. The flotation cost of issuing the new bonds is estimated to be $35 per bond. How low would the yield to maturity on the new bonds have to be for it to be profitable to call the bonds today, i.e., what is the nominal annual breakeven rate ?

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