To calculate the price of zero-coupon bonds on a financial calculator, input the given yield to maturity, the number of years to maturity, the bond's face value, and set the payment to 0. Then, compute the present value, which represents the bond’s price.
To calculate the price of a zero-coupon bond using a financial calculator, you will need to input the following variables: the yield to maturity (YTM), the number of years to maturity, and the face value (par value) of the bond. A zero-coupon bond does not make periodic interest payments, so the coupon rate is not considered in the calculation. Instead, the bond is typically sold at a discount, and the investor receives the face value at maturity.
For a zero-coupon bond with a par value of $1,000, the calculation would be done as follows for each bond:
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- Input the given YTM as the discount rate (in percentage).
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- Input the number of years to maturity.
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- Set the future value (FV) to the par value of the bond, which is $1,000 here.
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- Since there are no periodic payments, set the payment (PMT) to 0.
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- Calculate the present value (PV), which will represent the bond’s price.
For example, if we have a one-year zero-coupon bond (Bond A) with a yield to maturity of 6%, using a financial calculator, we would set:
- N (number of periods) to 1.
- I/Y (interest rate per period) to 6%.
- FV (future value) to $1,000.
- PMT (payment per period) to $0.
- Compute PV (present value).
The calculated PV will be the current price of the bond. By computing PV using the given YTM for each year in your question, you can determine the prices for bonds A through E correspondingly.