Final answer:
To calculate the price of the zero coupon bond with a yield to maturity of 6.5% over five years, you discount the face value, typically $1,000, by the yield rate to maturity raised to the number of years to maturity. The illustrative calculation shows the price would be approximately $744.09, but without the actual face value, the correct answer from the provided options cannot be determined.
Step-by-step explanation:
The question is about calculating the price of a zero coupon bond issued by Highland Corp. based on its yield to maturity. A zero coupon bond is a bond that does not pay periodic interest payments, instead, it is sold at a discount to its face value and matures at face value. To calculate the current price of the bond, we need to discount the face value using the yield to maturity, and the formula to calculate is:
Price = Face value / (1 + Yield to maturity) Number of years to maturity
In this case, since the face value of the bond is typically $1,000 and the yield to maturity is 6.5%, for 5 years, the calculation would be:
Price = $1,000 / (1 + 0.065)5
After performing the calculation, the price of the bond will be approximately $744.09. However, this is only an illustrative calculation, and the actual price could be one of the options provided depending on the face value which is not mentioned in the question.