Verso Paper Holdings, a producer of coated papers, has a bond outstanding with a cou- pon interest rate of 8.75 percent that will mature in 7 years. The investors who have purchased the bonds are requiring a really high rate of return of 25.34 percent! Compute the value of the bonds for the current investors. Earning a 25 percent rate of return is fantastic sure beats government Treasury bond rates.

So why would many investors choose not to invest in these bonds, in spite of the high rate of return?