Several years ago, Ohio Hospitals, Inc. issued bonds at par value and a yield to maturity of 8 percent.

1. What is the coupon rate of the Ohio Hospitals bonds?

2. Now the Ohio Hospitals bonds have 4 years left until maturity. The company has recently experienced financial difficulties and the yield to maturity on the bonds has increased to 15 percent. Assuming coupon payments are made semiannually, what is the maximum amount you would pay for Ohio Hospitals bonds now that the yield to maturity has increased? Use the coupon you identified in part a to determine the semiannual dollar coupon payments.
3. Suppose investors believe Ohio Hospitals will be able to pay each of the promised coupon payments but the company will go bankrupt when the principal repayment is due at maturity. The expectation is that investors will receive 80 percent of the face value at maturity. If investors buy the bond today, what yield to maturity do they expect to receive?
4. By how much has the default risk premium changed from part b to part c? Show your calculations.