Question

You find a zero coupon bond with a par value of $10,000 and 15 years to maturity. The yield to maturity on this bond is 4.8 percent. Assume semiannual compounding periods. What is the price of the bond?

Answer 1

$4909.09

Step-by-step explanation:

The computation of price of the bonds is shown below:-

Future Value = $10,000

Yield to maturity = 4.8% ÷ 2

= 2.4%

Number of years = 15 × 2

= 30 years

Value of a zero coupon Bond = Future Value ÷ (1 + Yield to Maturity )^N

= $10,000 ÷ (1 + 2.4%)^30

= $10,000 ÷ (1.024)^30

= $10,000 ÷ 2.037035976

= $4909.09

Therefore, A zero coupon bond pays no interest. And coupon payments over the entire bond period will be 0