Assume Venture Healthcare sold bonds that have a ten-year maturity, a 12 percent coupon rate with annual payments, and a $1,000 par value.
- Suppose that two years after the bonds were issued, the required interest rate fell to 7 percent. What would be the bond’s value?
- Suppose that two years after the bonds were issued, the required interest rate rose to 13 percent. What would be the bond’s value?
- What would be the value of the bonds three years after issue in each scenario above, assuming that interest rates stayed steady at either 7 percent or 13 percent?
Tidewater 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.
- What is the bond’s yield to maturity?
- Now, assume that the bond has semiannual coupon payments. What is its yield to maturity in this situation?
Minneapolis Health System has bonds outstanding that have four years remaining to maturity, a coupon interest rate of 9 percent paid annually, and a $1,000 par value.
- What is the yield to maturity on the issue if the current market price is $829?
- If the current market price is $1,104?
- Would you be willing to buy one of these bonds for $829 if you required a 12 percent rate of return on the issue? Explain your answer.
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?