twin oaks health center has a bond issue outstanding with a coupon rate of 7% an
ID: 2676374 • Letter: T
Question
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. now suppose twin oaks four year bond had semiannual coupon payments. what would be its current value?(assume a 7% semiannual required rate of return. however the actual rate would be slightly less tan an annual coupon bond.)
c. assume that twin oaks bond had a semiannual coupon but 20 years remaining to matuirity. what is the current value under these conditions?(again assume a 7% semiannual requied rate of return, although the actual rate would probably be greater than 7% because of increased price risk.)
Explanation / Answer
Just use a financial calculator for these a. N=4, I/Y=14,PV=?, PMT=70,FV=1000 Then CPT for PV Current Value=$796.04 b. N=8, I/Y=7, PV=?, PMT=35, FV=1000 Then CPT for PV Current Value=$791.00 c. N=40, I/Y=7, PV=?, PMT=35, FV=1000 then CPT for PV Current Value=$533.39
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