ssume Venture Healthcare sold bonds that have a ten-year maturity, a 12 percent coupon rate withannual

 AssumeVenture Healthcare sold bonds that have a ten-year maturity, a 12 percentcoupon rate withannualpayments, and a \$1,000 par value.a.Suppose that two years after the bonds were issued, the required interestrate fell to 7 percent. Whatwould be the bond’s value?b.Suppose that two years after the bonds were issued, the required interestrate 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 scenarioabove, assuming thatinterest rates stayed steady at either 7percent or 13 percent?ANSWERUNDERSTANDINGHEALTHCARE FINANCIAL MANAGEMENTChapter 5 — DebtFinancingChapter 7 — SecuritiesValuation, Market Efficiency, and Debt RefundingPROBLEM2TwinOaks Health Center has a bond issue outstanding with a coupon rate of 7percent and four yearsremaininguntil maturity. The par value of the bond is \$1,000, and the bond paysinterest annually.a.Determine the current value of the bond if present market conditions justifya 14 percent required rateof return.b.Now, suppose Twin Oaks’ four-year bond had semiannual coupon payments. Whatwould be its currentvalue? (Assume a 7 percent semiannualrequired rate of return. However, the actual rate would beslightly less than 7 percent because asemiannual bond is slightly less risky than an annual couponbond.)c.Assume that Twin Oaks’ bond had a semiannual coupon but 20 years remaining tomaturity. What isthe current value under these conditions?(Again, assume a 7 percent semiannual required rate ofreturn, although the actual rate wouldprobably be greater than 7 percent because of increased pricerisk.)ANSWERUNDERSTANDINGHEALTHCARE FINANCIAL MANAGEMENTChapter 6 — EquityFinancing and Investment BankingChapter 7 — SecuritiesValuation, Market Efficiency, and Debt RefundingPROBLEM2MedicalCorporation of America (MCA) has a current stock price of \$36, and its lastdividend (D0) was\$2.40.In view of MCA’s strong financial position, its required rate of return is 12percent. If MCA’sdividendsare expected to grow at a constant rate in the future, what is the firm’sexpected stock price infive years?

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