Consider the Leverage Unlimited, Inc., zero coupon bonds of 2016. The bonds were

Question

Consider the Leverage Unlimited, Inc., zero coupon bonds of 2016.  The bonds were issued in 1998 for $100.  Determine the yield to maturity (to the nearest 1/10 of 1 percent) if the bonds are purchased at th

a.  Issue price in 1998.  (Note: To avoid a fractional year holding perilod, assume that the issue and maturity dates are at the midpoint - July 1 - of the respective years.)

b. Market price as of July, 1 2012, of $750.

c.  Explain why the returns calculated in Parts a and b are different.

Please show how to input the numbers into the formulas needed so I can show my work, please and thank you.

Explanation / Answer

13.65%

7.46%

(above were computed using a financial calculator)

Market rates have changed and price has adjusted.

Maturity is closer so there is less default and interest rate risk.

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