Question

Barbara Jones 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 10.3 percent. Assume annual coupon payments. What is the current value of this bond? (Round answer to 2 decimal places, e.g. 15.25.)

Answer 1

Zero-cupon bond= $612.52

Step-by-step explanation:

Giving the following information:

Face value= $1,000

Number of periods= 5 years

Interest rate= 10.3% = 0.103

To calculate the price of the bond, we need to use the following formula:

Zero-cupon bond= [face value/(1+i)^n]

Zero-cupon bond= [1,000 / (1.103^5)]

Zero-cupon bond= $612.52