Question 3: Evaluate the prices of the following pure discount (zero-coupon) bon

Question

Question 3:

Evaluate the prices of the following pure discount (zero-coupon) bonds:

        (a) $1000 face value received in five years yielding an annual rate of 8 per cent.

        (b) $10,000 face value received in three years yielding an annual rate of 6 per cent.

        (c)  $100,000 face value received in 10 years yielding an annual rate of 13 per cent.

        (d) $1,000,000 face value received in two years yielding an annual rate of 7 per cent.

        (e) $1,000,000 face value received in six months yielding an annual rate of 7 per cent.

Question 4:

Calculate the percentage price changes for each of the bonds in Question 3 if all yields increase by 1 per cent.

Explanation / Answer

Zero coupon bond value = F / (1 + r)t

Where:
F = face value of bond
r = rate or yield
t = time to maturity

a) BOND VALUE = 680.58

B) BOND VALUE = 8396.19

C) BOND VALUE = 29458.83

D) BOND VALUE = 873438.73

E) BOND VALUE = 966736.49

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