11.2 Twin Oaks Health Center has a bond issue outstanding with a coupon rate of 7 percent and four years remaining until maturity. The par value of the bond is $1,000, and the bond pays interest annually.

a. Determine the current value of the bond if present market conditions justify a 14 percent required rate of return.

b. Now, suppose Twin Oakss four-year bond had semiannual coupon payments. What would be its current value? (Assume a 7 percent semiannual required rate of return. However, the actual rate would be slightly less than 7 percent because a semiannual coupon bond is slightly less risky than an annual coupon bond.)

c. Assume that Twin Oakss bond had a semiannual coupon but 20 years remaining to maturity. What would be the current value under these conditions? (Again, assume a 7 percent semiannual required rate of return, although the actual rate would probably be greater than 7 percent because of increased price risk.)

11.3. Tideview Home Health Care, Inc., has a bond issue outstanding with eight years remaining to maturity, a coupon rate of 10 percent with interest paid annually, and a par value of $1,000. The current market price of the bond is $1,251.22.

a. What is the bonds yield to maturity?

b. Now, assume that the bond has semiannual coupon payments. What is its yield to maturity in this situation?

11.4. Homecare Inc. has three bond issues outstanding. All three bonds pay $100 in annual interest plus $1,000 at maturity. Bond S has a maturity of five years, bond M has a 15-year maturity, and bond L matures in 30 years.

a. What is the value of each of these bonds when the required interest rate is 5 percent, 10 percent, and 15 percent?

b. Why is the price of bond L more sensitive to interest rate changes than the price of bond S?