Lance Whittingham IV specializes in buying deep discount bonds. These represent bonds that are trading at...

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Lance Whittingham IV specializes in buying deep discount bonds.These represent bonds that are trading at well below par value. Hehas his eye on a bond issued by the Leisure Time Corporation. The$1,000 par value bond pays 8 percent annual interest and has 17years remaining to maturity. The current yield to maturity onsimilar bonds is 13 percent.
a. What is the current price of the bonds? UseAppendix B and Appendix D for an approximate answer but calculateyour final answer using the formula and financial calculatormethods. (Do not round intermediate calculations. Roundyour final answer to 2 decimal places. Assume interest payments areannual.)



b. By what percent will the price of the bondsincrease between now and maturity? (Do not roundintermediate calculations. Input your answer as a percent roundedto 2 decimal places.)

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4.2 Ratings (484 Votes)

1Current Price of the Bond The Current Price of the Bond is the Present Value of the Coupon Payments plus the Present Value of the face Value Face Value of the bond 1000 Annual Coupon Amount 80 1000 x 8 See Answer

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Lance Whittingham IV specializes in buying deep discount bonds.These represent bonds that are trading at well below par value. Hehas his eye on a bond issued by the Leisure Time Corporation. The$1,000 par value bond pays 8 percent annual interest and has 17years remaining to maturity. The current yield to maturity onsimilar bonds is 13 percent.a. What is the current price of the bonds? UseAppendix B and Appendix D for an approximate answer but calculateyour final answer using the formula and financial calculatormethods. (Do not round intermediate calculations. Roundyour final answer to 2 decimal places. Assume interest payments areannual.) b. By what percent will the price of the bondsincrease between now and maturity? (Do not roundintermediate calculations. Input your answer as a percent roundedto 2 decimal places.)