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 4 percent annual interest and has 10 years remaining to maturity. The current yield to maturity on similar bonds is 12 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 b. By what percent will the price of the bonds increase between now and maturity? Price increases by c. What is the annual compound rate of growth in the value of the bonds? (Use Appendix A) Annual compound rate 27

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 4 percent annual interest and has 10 years remaining to maturity. The current yield to maturity on similar bonds is 12 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 b. By what percent will the price of the bonds increase between now and maturity? Price increases by c. What is the annual compound rate of growth in the value of the bonds? (Use Appendix A) Annual compound rate 27

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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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 pays 7 percent annual interest and has 16 years remaining to maturity. The current yield to maturity on similar bonds is 11 percent. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. a. What is the current price of the bonds? Note: Do not round intermediate calculations. Round your final answer to 2 decimal places. Assume interest payments are annual. Current price of the bond b. By what percent will the price of the bonds increase between now and maturity? Note: Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places. Percentage increase in price of bond %
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 pays 4 percent annual interest and has 18 years remaining to maturity. The current yield to maturity on similar bonds is 12 percent. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. a. What is the current price of the bonds? (Do not round intermediate calculations. Round your final answer to 2 decimal places. Assume interest payments are annual.) Current price of the bond b. By what percent will the price of the bonds increase between now and maturity? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) Price increases by
Lance Whittingham IV specializes in buying deep discount borids. 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 4 percent annual interest and has 8 years remaining to maturity. The current yield to maturity on similar bonds is 10 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 $b. By what percent will the price of the bonds increase between now and maturity? Price increases by % c. What is the annual compound rate of growth in the value of the bonds? (Use Appendix A) Annual compound rate %.
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 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 percentage 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.)
Harold Reese must choose between two bonds: Bond X pays $85 annual interest and has a market value of $780. It has 12 years to maturity.Bond Z pays $95 annual interest and has a market value of $800. It has five years to maturity. Assume the par value of the bonds is $1,000. a. Compute the current yield on both bonds. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) b. Which bond should he select based on your answers to part a? multiple choice 1 Bond Z Bond X c. A drawback of current yield is that it does not consider the total life of the bond. For example, the approximate yield to maturity on Bond X is 11.90 percent. What is the approximate yield to maturity on Bond Z? The exact yield to maturity? (Use the approximation formula to compute the approximate yield to maturity and use the calculator method to compute the exact yield to maturity. Do not round intermediate calculations. Input your answers as a…
Harold Reese must choose between two bonds: Bond X pays $92 annual interest and has a market value of $895. It has 10 years to maturity. Bond Z pays $82 annual interest and has a market value of $920. It has four years to maturity. Assume the par value of the bonds is $1,000. a. Compute the current yield on both bonds. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) Bond X Bond Z Bond X O Bond Z Current Yield b. Which bond should he select based on your answers to part a? % % c. A drawback of current yield is that it does not consider the total life of the bond. For example, the approximate yield to maturity on Bond X is 10.94 percent. What is the approximate yield to maturity on Bond Z? The exact yield to maturity? (Use the approximation formula to compute the approximate yield to maturity and use the calculator method to compute the exact yield to maturity. Do not round intermediate calculations. Input your answers as a percent…
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.)
Harold Reese must choose between two bonds: Bond X pays $70 annual interest and has a market value of $845. It has 10 years to maturity.Bond Z pays $60 annual interest and has a market value of $870. It has five years to maturity. Assume the par value of the bonds is $1,000. a. Compute the current yield on both bonds. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) Current yield % Bond X Bond Z b. Which bond should he select based on your answers to part a? multiple choice 1 Bond X Bond Z c. A drawback of current yield is that it does not consider the total life of the bond. For example, the approximate yield to maturity on Bond X is 9.43 percent. What is the approximate yield to maturity on Bond Z? The exact yield to maturity? (Use the approximation formula to compute the approximate yield to maturity and use a calculator or Excel to compute the exact yield to maturity. Do…
Harold Reese must choose between two bonds: Bond X pays $70 annual interest and has a market value of $845. It has 10 years to maturity.Bond Z pays $60 annual interest and has a market value of $870. It has five years to maturity. Assume the par value of the bonds is $1,000. a. Compute the current yield on both bonds. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) current yield% Bond x Bond z b. Which bond should he select based on your answers to part a? multiple choice 1 Bond X Bond Z c. A drawback of current yield is that it does not consider the total life of the bond. For example, the approximate yield to maturity on Bond X is 9.43 percent. What is the approximate yield to maturity on Bond Z? The exact yield to maturity? (Use the approximation formula to compute the approximate yield to maturity and use a calculator or Excel to compute the exact yield to maturity. Do not round…
An investor must choose between two bonds: Bond A pays $102 annual interest and has a market value of $890. It has 10 years to maturity. Bond B pays $88 annual interest and has a market value of $800. It has five years to maturity. Assume the par value of the bonds is $1,000. a. Compute the current yield on both bonds. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) b. Which bond should she select based on your answers to part a? multiple choice 1 Bond A Bond B c. A drawback of current yield is that it does not consider the total life of the bond. For example, the approximate yield to maturity on Bond A is 12.10 percent. What is the approximate yield to maturity on Bond B? The exact yield to maturity? (Use the approximation formula to compute the approximate yield to maturity and use the calculator method to compute the exact yield to maturity. Do not round intermediate calculations. Input your answers as…
You are considering an investment in 30-year bonds issued by Moore Corporation. The bonds have no special covenants. The Wall Street Journal reports that 1-year T-bills are currently earning 1.50 percent. Your broker has determined the following information about economic activity and Moore Corporation bonds: Real risk-free rate = 0.50% Default risk premium = 1.40% Liquidity risk premium = 1.00% Maturity risk premium = 2.00% a. What is the inflation premium? b. What is the fair interest rate on Moore Corporation 30-year bonds? Note: Round your percentage answers to 2 decimal places (ie., 0.1234 should be entered as 12.34). Expected inflation premium Fair interest rate
A firm issued bonds that will pay $1000 with certainty in one year. The market price was $970. If you purchased one of those bonds, what is the yield in percent, on the bond held to maturity? Round to one decimal place and do not enter the % sign. If your answer is 1.333%, enter 1.3. If your answer is 1.666%, enter 1.7. If appropriate, remember to enter the sign.

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