Question
In need of help with all parts please Problem 11.2 Twin Oaks Health Center has a bond issue outstanding with a coupon rate of 7
In need of help with all parts please
Problem 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.AssumethatTwinOakssbondhadasemiannualcouponbut20yearsremainingtomaturity.Whatisthecurrentvalueundertheseconditions?(Again,assumea7percentsemiannualrequiredrateofreturn,althoughtheactualratewouldprobablybegreaterthan7percentbecauseofincreasedpricerisk).
11.4 Pacific Homecare 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.
b. Why is the price of Bond L more sensitive to interest rate changes than the price of Bond S?
11.6 Six years ago, Bradford Community Hospital issued 20-year municipal bonds with a 7 percent annual coupon rate. The bonds were called today for a $70 call premium-that is, bondholders received $1,070 for each bond. What is the realized rate of return for those investors who bought the bonds for $1,000 when they were issued?
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