Assume Venture Healthcare sold bonds that a 10 year maturity, a 12% coupon rate with annual payments, and a $1,000 par value.
a. Suppose that two years after the bonds were issued the required interest rate fell to 7%. What would be the bonds value?
b. Suppose that two years after the bonds were issued the required interest rate rose to 13%. What would be the bond's value?
c. What would be the value of the bonds three years after issue if the rate was steady at 7%
d. What would be the value of the bonds three years after issue if the rate was steady at 13%
Twin Oaks Health Center has a bond issue outstanding with a coupon rate of 7% 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% required rate of return?
b. Suppose Twin Oaks four year bond had semiannual coupon payments. What would be its current value? (assume a 7% semiannual required rate of return. The actual rate would be slightly less than 7% because a semiannual coupon bond is slightly less risky than an annual coupon bond)
c. Assume that Twin Oaks bond had a semiannual coupon rate but 20 years remaining to maturity. What is the current value under these conditions? (assume a 7% semiannual required rate of return although the actual rate would probably be greater than 7% because of increased price risk).
Minneapolis Health System has bonds outstanding that have four years remaining to maturity a coupon interest rate of 9% paid annually and a $1,000 par value.
a. What is the yield to maturity on the issue if the current market price is $829?
Six years ago Bradford Community Hospital issues 20 year municipal bonds with a 7% annual coupon rate. The bonds were called today for a $70 premium - that is bondholders received $1,070 for each bond.
a. What is the realized rate of return for those investors who bought the bonds at $1,000 when they were issued?