Question

Assuming semiannual compounding, what is the price of a zero coupon bond with 12 years to maturity paying $1,000 at maturity if the YTM is (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.):

Answer 1

Price of the Bond

a. 3 percent = $701.38

b. 7 percent = $444.01

c. 11 percent = $285.84

Step-by-step explanation:

since the bonds do not pay any coupon, in order to determine its price all you need to do is to determine the present value of the bonds' face value using the present value formula:

3% ⇒ PV = $1,000 / (1 + 3%)¹² = $701.38

7% ⇒ PV = $1,000 / (1 + 7%)¹² = $444.01

11% ⇒ PV = $1,000 / (1 + 11%)¹² = $285.84