Question

Helen Martin is interested in buying a five-year zero coupon bond with a face value of $1,000. She understands that the market interest rate for similar investments is 8.5 percent. Assume annual coupon payments. What is the current value of this bond

Answer 1

the current value of the bond is $665.05

Step-by-step explanation:

The computation of the current value of the bond is shown below:

Current Value = Face value ÷ ( 1 + rate of interest)^time period

= $1,000 ÷ (1 + 0.085)^5

= $1,000 ÷ (1.085)^5

= $1,000 ÷ 1.503657

= $665.045423

= $665.05

hence, the current value of the bond is $665.05

We simply applied the above formula so that the correct value could come

And, the same is to be considered