value: 10.00 points While most bonds pay a coupon (regularly scheduled interest

Question

value: 10.00 points While most bonds pay a coupon (regularly scheduled interest payments), some bonds do not. These zero coupon bonds pay interest only when the bond matures. Pricing these bonds is different, but easier, than pricing coupon bonds You want to purchase a zero coupon bond with a par value of $10,000 and 21 years to maturity. The annual yield to maturity on this bond is 4.3 percent with semi-annual compounding. What is the price of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Price References eBook & Resources aming Qtiectve: (07-02 Bond values and vields andiwhy They tuctuate Worksheet Difficulty: Basic

Explanation / Answer

Price of a zero coupon bond is the present value of Face Value. Present Value of Face Value = Face Value x Present Value of 1 = $       10,000 x 0.40925 = $   4,092.50 Working: Present Value of 1 = (1+i)^-n Where, = (1+0.0215)^-42 i 4.3%/2 = 0.0215 = 0.40925 n 21*2 = 42 Current Price of Bond is $ 4,092.50

Related Questions

Navigate

• Browse (All)
• Browse V
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.