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.)

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
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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.)
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