Consider the Leverage Unlimited, Inc., zero coupon bonds of 2008. The bonds were issued in 1990 for $100. Determine the yield to maturity (to the nearest 1/10 of 1 percent) if the bonds are purchased at the
a. Issue price in 1990. (Note: To avoid a fractional year holding period, assume that the issue and maturity dates are at the midpoint-July 1-of the respective years.)
b. Market price as of July 1, 2004, of $750. c. Explain why the returns calculated in Parts a and b are different.