21 May WHAT IS THE CURRENT VALUE UNDER THESE CONDITIONS?
Twin Oaks Health Center has a bond issue outstanding with acoupon rate of 7 percent and four yearsremaining until maturity. The par value of the bond is $1000 andthe bond pays interest annually.a. Determine the current value of the bond if present marketconditions justify a 14 percent required rateof return.b. Now suppose Twin Oaks four-year bond had semiannual couponpayments. What would be its currentvalue? (Assume a 7 percent semiannual required rate of return.However the actual rate would beslightly less than 7 percent because a semiannual bond is slightlyless risky than an annual couponbond.)c. Assume that Twin Oaks bond had a semiannual coupon but 20 yearsremaining to maturity. What is the current value under these conditions? (Again assume a 7percent semiannual required rate ofreturn although the actual rate would probably be greater than 7percent because of increased pricerisk.)
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