Atlantic healthcare A bond valuation Case.

2-Now regardless of your answers to question1, assume that on january 1, 2010, the 5-year bond is elling for $800.00, the 15-year bond is selling for $865.49, and the 25-year bond is elling for $1,220.00 (use these same prices, and assume semiannual coupons, for all of the remaining questions in this case. )

a. What is the stated (as opposed to effective annual) yield to mturity (YTM) on each bond? (Note: The stated rate is also called the nominal rate.)

b. What is the effective annual YTM on each issue?

c. In comparing bond yields with the yields on other securities, should the tsated of effective YTM be used? In comparing yields amoung bonds, should the stated or effective YTM be used? Explain.

d. Explain the economic menaing of YTM

3- suppose atlantic has a second bond with 25 years left to maturity in addition to the one listed in exhibit 14.1 that has a copon rate of 73/8 percent and a january 1,2010 market price of 747.48.

suppose atlantic has a second bond with 25 years left to maturity in addition to the one listed in exhibit 14.1 that has a copon rate of 73/8 percent and a january 1,2010 market price of 747.48.

a-what are the stated and the effective annual YTMs on this bond?

b- what is the current yield on each of the 25 year bonds?

c-what is each of the 25year bonds expected price on janury 1, 2011, and its capital gains yield for 2010 , assuming no change in interest rates?(Hint remember that the normal YTM on each 25 year bond which is assumed to be its required rate of return is 10,18 percent.

d- what will happen to the value and price in an efficient market of each 25 year bond over time?

again assume constant future intrest rates.

e- what s the expected total percentage return on each 25 year bond during 2010?

f- if you were a tax paying investor, which of the two 25 year bonds would you perfer?Why What impact will this preference have on the price , and hence YTMs of the two bonds?

5-now assume that the 15 years bond is callable after five years at $1,050

a- what is its yield to call YTC? Hint set up the cash flows on a timeline. if the bond is called, in vestors will receive interest payments for five year and then receve $1,050 $ 1,000 in principal and call premium of five years. the YTM on this cash flow stream is the bonds YTC.

b- do you think it is likely that the bond will be called?Explain.

6- Discuss the basic differences between the bond issued bynot for profit healthcare organization through municipal financing authorities.

7- expllain how investors set required rates of return on debt securities.

8- What is the term structure of interest rates? what is a yield curve? why is the yield curve important to both investors and managers?

9-brifly describe the bond ratingsystem including the names of the major rating agencies, the rating used, the criteriafor assigning rating and the importance of rating to both investors and managers. also describe the concept of credit enhancernet and how issuers should evaluate whether or not to use it.

Face amount coupon rate maturity date years to maturity s&p bond

rating

48,000,000 41/2 12/31/14 5 A+

$32,000,000 81/4 12/31/24 15 A+

$100,000,000 12 5/8 12/31/34 25 A+

atlantic healthcare partial long term bond listing.