Question
Asked Nov 6, 2019

Calculate the price of a zero-coupon bond that matures in 10 years if the market interest rate is 6 percent. (Assume semiannual compounding and $1,000 par value.)

A.) $553.68

B.) $558.66

C.) $940.00

D.) $1,000.00

check_circleExpert Solution
Step 1

Formula:

FV
Price=
(2xn
1 +
2
FV $1,000
r 6%
n 10 years
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FV Price= (2xn 1 + 2 FV $1,000 r 6% n 10 years

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Step 2

Computation of zero-coupon bond price:

Hence, the price of the zero-coupon bond is $553.68

...
FV
Price =
(2xn)
1+
2
$1,000
(2x10)
0.06
1+
2
$1,000
1.8061
=$553.68
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FV Price = (2xn) 1+ 2 $1,000 (2x10) 0.06 1+ 2 $1,000 1.8061 =$553.68

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