<p>Twin Oaks Health Center has a bond issue outstanding with a coupon rate of 7%

Question

<p>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. b. Now, suppose Twin Oaks&rsquo; four year bond has semiannual coupon payments. What would be its current market value? (assume a 7% semiannual required rate of return. However, 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&rsquo; bond has a semiannual coupon but 20 years remaining to maturity. What is the current value of these conditions?</p>

Explanation / Answer

b. Semiannual payment = 3.5%*1000=35 Current market value = 35/1.07 +35/1.07^2 ....1035/1.07^8 =$791.00 c. No of payments left = 40 Semiannual payment = 3.5%*1000=35 Current market value = 35/1.07 +35/1.07^2 ....1035/1.07^40 =$533.39

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