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 6 percent annual interest and has 15 years remaining to maturity. The current yield to maturity on similar bonds is 14 percent.
a. What is the current price of the bonds? Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods.
b. By what percent will the price of the bonds increase between now and maturity?
a) Current bond price = Coupon * ((1 - (1/(1+i)^n)) / i) + Par value * (1 / (1+i)^n)
Here,
Par value = $1,000
Coupon = Par value * Coupon rate
Coupon = $1,000 * 6% = $60
i (yield to maturity) = 14% or 0.14
n (years) = 15
Now,
Current bond price = $60 * ((1 - (1/(1+0.14)^15)) / 0.14) + $1,000 * (1/(1+0.14)^15)
Current bond price = $60 * ((1 - 0.1401) / 0.14) + ($1,000 * 0.1401)
Current bond price = ($60 * (0.8599 / 0.14)) + $140.10
Current bond price = ($60 * 6.1421) + $140.10
Current bond price = $368.53 + $140.10
Current bond price = $508.63
b) By % will increase price of bonds between now & maturity :
Maturity value of bond (Par value) = $1,000
Current price of bond = $508.63
% increase in bond = (Maturity value - Current price)/ Current price
% increase in bond = ($1,000 - $508.63) / $508.63
% increase in bond = $491.37 / $508.63
% increase in bond price between now & maturity = 0.9661 or 96.61%
Lance Whittingham IV specializes in buying deep discount bonds. These represent bonds that are trading at...
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 6 percent annual interest and has 15 years remaining to maturity. The current yield to maturity on similar bonds is 15 percent. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and...
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...
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...
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 8 percent annual interest and has 17 years remaining to maturity. The current yield to maturity on similar bonds is 10 percent. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and...
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 10 percent. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and...
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 5 percent annual interest and has 14 years remaining to maturity. The current yield to maturity on similar bonds is 14 percent. Use Appendix Band Appendix D for an approximate answer but calculate your final answer using the formula and financial...
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 11 percent. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and...
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 8 percent annual interest and has 17 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...
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...
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 13 percent. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and...