Question

You find a zero coupon bond with a par value of $10,000 and 21 years to maturity. The yield to maturity on this bond is 4.3 percent. Assume semiannual compounding periods.What is the price of the bond?

Answer 1

Price of bond $4,092.49

Step-by-step explanation:

Computation the price of the bond

Using this formula

Price of bond=Par value*1/(1+YTM/2)^(2*time period)

Where,

Par value=$10,000

1/(1+YTM/2)=1/(1+0.043/2)

(2*time period)=(2*21 years)

Let plug in the formula

Price of bond=$10,000*1/(1+0.043/2)^(2*21)

Price of bond=$10,000*1/(1.0215)^42

Price of bond=$10,000*(0.97895252)^42

Price of bond=$10,000*0.4092497467

Price of bond=$4,092.49

Therefore the price of the bond will be $4,092.49