The following information is extracted from HealthSouth on their four-year bonds issue that came out in 2016. The par value of the bonds is $1000 and the coupon rate is 3% and the coupon payments are annual.
One year later, in 2017, if the required rate of return on the bond is 4%, determine the value of the bond. (4 points)
If in 2017 the required rate of return on the bond is actually 2%, how does the value of the bond change? (4 points)
In which case (‘a’ or ‘b’) is the bond selling at a premium? If the bond is selling at a premium, how does the value of the bond change to maturity. (5 points)
What is the yield to maturity in 2017 of this now three-year bond that is selling at a premium (from ‘a’,‘b’ and ‘c’ above)? (5 points)