Mini case chapter 6 sam strother and shawna tibbs are

This preview shows page 4 - 6 out of 6 pages.

Mini Case Chapter 6 Sam Strother and Shawna Tibbs are vice presidents of Mutual of Seattle Group Health Cooperative and codirectors of the organization's pension fund management division. The unions that represent the GHC hospital staff have requested an investment seminar so that they better understand the decisions being made on behalf of their members. Strother and Tibbs, who will make the actual presentation, have asked you to help them by answering the following questions. a. What is the value of a ten-year, $1,000 par value bond with a 10 percent annual coupon if its required rate of return is 10 percent?
b. What would be the value of the bond described in question a. if, just after it had been issued, the expected inflation rate rose by 3 percentage points, causing investors to require a 13 percent return? Would we now have a discount or a premium bond?
c. What would be the value of the bond described in question a. if, just after it had been issued, the expected inflation rate fell by 3 percentage points, causing investors to require a 7 percent return? Would we now have a discount or a premium bond?
Value = $1,210.71 This is a premium bond.

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture