PROBLEM 1

Assume HCA sold bonds that have a ten-year maturity, a 12 percent 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 percent. Whatwould be the bond's value?

b. Suppose that two years after the bonds were issued, the required interest rate rose to 13 percent. Whatwould be the bond's value?

c. What would be the value of the bonds three years after issue in each scenario above, assuming thatinterest rates stayed steady at either 7 percent or 13 percent?

PROBLEM 2

Tenet Healthcare, 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.

a. What is the bond's yield to maturity?

b. Now, assume that the bond has semiannual coupon payments. What is its yield to maturity in thissituation?

PROBLEM 3

United Health Group 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.

a. What is the yield to maturity on the issue if the current market price is $829?

b. If the current market price is $1,104?

c. Would you be willing to buy one of these bonds for $829 if you required a 12 percent rate of return onthe issue? Explain your answer.