Question

Robertsons, Inc., is planning to expand ita specialty stores into five other states and finance the expansion by issuing 15-year zero coupon bonds with a face value of $1,000. If your opportunity cost is 8 percent and similar coupon-bearing bonds will pay semiannually, what will be the price at which you will be willing to purchase these bonds

Answer 1

$308

Step-by-step explanation:

The computation of the price is shown below:

Price of zero coupon bond = Face value ÷ (1 + interest rate)^number of years

where,

Face value = $1,000

Interest rate = 8% ÷ 2 = 4%

And, the number of years is

= 15 years × 2

= 30 years

So, the price of zero coupon bond is

= $1,000 ÷ (1 + 4%)^30

= $308

Hence, the price of zero coupon bond is $308