Question

You purchased a zero-coupon bond one year ago for $283.83. The market interest rate is now 9 percent. Assume semiannual compounding. If the bond had 15 years to maturity when you originally purchased it, what was your total return for the past year?

Answer 1

The total return for the past year on the zero-coupon bond is $716.17.

Step-by-step explanation:

To calculate the total return on the zero-coupon bond, we need to consider the future value of the bond and the initial purchase price. The future value of the bond after one year is $1,000, which represents the face value. The initial purchase price was $283.83. Therefore, the total return for the past year can be calculated by subtracting the initial purchase price from the future value:

Total Return = Future Value - Initial Purchase Price

Total Return = $1,000 - $283.83 = $716.17

So, the total return for the past year on the zero-coupon bond is $716.17.