Question

Navarro, Inc., plans to issue new zero coupon bonds with a par value of $1,000 to fund a new project. The bonds will have a YTM of 5.31 percent and mature in 30 years. If we assume semiannual compounding, at what price will the bonds sell?

Answer 1

The bond will sell at $4831.43

Step-by-step explanation:

Given C = 0, FV = $1000, YTM= 5.31%, n =30 years

BV= ?

BV for a zero coupon bond is = F / (1+r)^-n*t

So we are told there is semi annual compounding

have to calculate

n = 30*2 = 60 periods

r = 5.31/2 = 2.66%

BV = 1000/(1+0.0266)^-60

=$4831.43