Question

A municipality is planning to issue a 5-year zero-coupon bond. The face value is $1,000 and the yield-to-maturity is 5.6%. What is the price of this muni-bond? Round to the nearest cent. Do not include a dollar sign in your answer. (i.e. If your answer is $432.51, then type 432.51 without $ sign)

Answer 1

Price of bonds= 761.51

Step-by-step explanation:

We know that zero-coupon bonds does not give coupon payment to investor,the return to investor is difference between price and face value of bond is given.

Formula: P= F/(1+r)∧T

where P= Price of bonds=?

r=yield to maturity=5.6%=0.056

T=5; No of periods, as in this it is not given semi annually, we will take r annually.

P= 1000/(1+.056)∧5

P= 1000/1.31316

P= 761.