Recently,Ohio Hospitals Inc.filed for bankruptcy.The firm was reorganized as American Hospitals Inc. ,and the court permitted a new indenture on an outstanding bond issue to be put into effect.The issue has 10 years to maturity and a coupon rate of 10 percent,paid annually.The new agreement allows the firm to pay no interest for 5 years.Then,interest payments will be resumed for the next 5 years.Finally,at maturity (Year 10),the principal plus the interest that was not paid during the first 5 years will be paid.However,no interest will be paid on the deferred interest.If the required return is 20 percent,what should the bonds sell for in the market today?

Question

Quizplus · Accepted Answer

The Answer of Recently,Ohio Hospitals Inc.filed for bankruptcy.The firm was reorganized as American Hospitals Inc. ,and the court permitted a new indenture on an outstanding bond issue to be put into effect.The issue has 10 years to maturity and a coupon rate of 10 percent,paid annually.The new agreement allows the firm to pay no interest for 5 years.Then,interest payments will be resumed for the next 5 years.Finally,at maturity (Year 10),the principal plus the interest that was not paid during the first 5 years will be paid.However,no interest will be paid on the deferred interest.If the required return is 20 percent,what should the bonds sell for in the market today?