Answered

Assuming semiannual compounding, a 10-year zero coupon bond with a par value of $1,000 and a required return of 12.4% would be priced at _________.

Answer :

jepessoa

Answer:

$300.27

Explanation:

the price of a zero coupon bond = maturity value / (1 + i)ⁿ

  • maturity value = $1,000
  • i = 12.4% / 2 = 6.2% semiannual interest rate
  • n = 10 years x 2 semiannual compounding = 20 periods

the price of a zero coupon bond = $1,000 / (1 + 6.2%)²⁰ = $1,000 / 1.062²⁰ = $1,000 / 3.330353506 = $300.27

the formula we used to determine the market price of a zero coupon bond is basically the present value

Other Questions