Lance Whittingham IV specializes in buying deep discount bonds. These represent bonds that are trading at well below part value. He has his eye on a bond issued by the Leisure Time Corporation. The $1,000 par value bond pays 4 percent annual interest and has 18 years remaining to maturity. The current yield to maturity on similar bonds is 14 percent. a. What is the current price of the bonds? b. By what percent will the price of the bonds increase between now and maturity? c. What is the annual compound rate of growth in the value of the bonds? (An approximate answer is acceptable.)

The Isabelle Corporation rents prom dresses in its stores across the southern United States. It has just issued a five-year, zero-coupon corporate bond at a price of $62 (assume a $100 face value bond). You have purchased this bond and intend to hold it until maturity. a. What is the yield to maturity of the bond? b. What is the expected return on your investment (expressed as an EAR) if there is no chance of default? c. What is the expected return (expressed as an EAR) if there is a 100% probability of default and you will recover 90% of the face value? d. What is the expected return (expressed as an EAR) if the probability of default is 50% in good times, the likelihood of default is higher in bad times than good times, and, in the case of default, you will recover 90% of the face value? e. For parts (b) through (d), what can you say about the five-year, risk-free interest rate in each case? Note: Assume annual compounding. C a. What is the yield to maturity of the bond? The yield to…

Bond X is a premium bond making semiannual payments. The bond pays a coupon rate of 7 percent, has a YTM of 5 percent, and has 13 years to maturity. Bond Y is a discount bond making semiannual payments. This bond pays a coupon rate of 5 percent, has a YTM of 7 percent, and also has 13 years to maturity. The bonds have a $1,000 par value. What is the price of each bond today? If interest rates remain unchanged, what do you expect the price of these bonds to be one year from now? In four years? In nine years? In 11 years? In 13 years?

Bhupatbhai

Lance Whittingham IV specializes in buying deep discount bonds. These represent bonds that are trading at well below par value. He has his eye on a bond issued by the Leisure Time Corporation. The $1,000 par value bond with semiannual payments has 5 percent annual interest and has 20 years remaining to maturity. The current yield to maturity on similar bonds is 14 percent. (Round "PV Factor" to 3 decimal places. Do not round Intermediate calculations. Round the final answers to 2 decimal places.) a. What is the current price of the bonds? Use Appendix B and Appendix D. Current price 530.78 b. By what percent will the price of the bonds increase between now and maturity? Price increases by 88.40 % c. What is the annual compound rate of growth in the value of the bonds? (Use Appendix A) Annual compound rate 4.63 %

(Related to Checkpoint 9.2) (Yield to maturity) The Saleemi Corporation's $1,000 bonds pay 8 percent interest annually and have 11 years until maturity. You can purchase the bond for $875. a. What is the yield to maturity on this bond? b. Should you purchase the bond if the yield to maturity on a comparable-risk bond is 8 percent? a. The yield to maturity on the Saleemi bonds is %. (Round to two decimal places.)