Question

Jarmine Corp., is planning to fund a project by issuing 10-year zero coupon bonds with a face value of $1,000. Assuming semiannual compounding of interest, what will be the price of these bonds if the appropriate discount rate is 14 percent? (Round your answer to the nearest dollar.)

A) $852
B) $258
C) $419
D) $841

Answer 1

The price of the 10-year zero coupon bonds will be $419.

Step-by-step explanation:

To calculate the price of the 10-year zero coupon bonds, we can use the present value formula:

PV = FV / (1+r/n)^(n*t)

Where PV is the price of the bond, FV is the face value of the bond ($1,000), r is the discount rate (14% or 0.14), n is the number of compounding periods per year (2 for semiannual compounding), and t is the number of years (10).

Substituting the values into the formula, we get:

PV = 1000 / (1+0.14/2)^(2*10) = $419

Therefore, the price of the bonds will be $419.