Question

You find a zero coupon bond with a par value of $10,000 and 28 years to maturity. The yield to maturity on this bond is 5.4 percent. Assume semiannual compounding periods. What is the dollar price of the bond?(Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

The dollar price of the zero coupon bond is $5,436.51. The dollar price of an asset is a fundamental aspect of economics and commerce.

To calculate the dollar price of the zero coupon bond, we can use the formula for present value of a bond:

Bond price = Par value / (1 + Yield/2)^(2 * Number of periods)

In this case:

Par value = $10,000

Yield to maturity = 5.1% = 0.051 (expressed as a decimal)

Number of periods = 14 years * 2 = 28 periods (since semiannual compounding)

Using the formula, we can calculate the bond price:

Bond price = $10,000 / (1 + 0.051/2)^(2 * 28)

Bond price = $10,000 / (1.0255)^(56)

Bond price = $10,000 / 1.838836

Bond price = $5,436.51

The dollar price, also known as the price or value of an asset, refers to the amount of money needed to purchase or acquire that asset. It represents the monetary valuation of an item, such as a product, service, or financial instrument.