Problem 10-12 Bond value (LO10-3]Jim Busby calls his broker to inquire about purchasing a bond of DiskStorage Systems. His broker quotes a price of $1,190. Jim is concernedthat the bond might be overpriced based on the facts involved. The$1,000 par value bond pays 13 percent interest, and it has 17 yearsremaining until maturity. The current yield to maturity on similar bondsis 11 percent.a. Calculate the present value of the bond. Use Appendix B andAppendix D for an approximate answer but calculate your final answerusing the formula and financial calculator methods. (Do not roundintermediate calculations. Round your final answer to 2 decimalplaces. Assume interest payments are annual.)Present valueb. Do you think the bond is overpriced?NoYes

The present value is the value of the sum received at time 0. It is the current value of the sum…

Answered: Jim Busby calls his broker to inquire…

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 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.)
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
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