Question

A firm offers a 10-year, zero coupon bond with a face value of $1,000. What is the current market price if the yield to maturity is 7.6 percent, given semiannual compounding

Answer 1

Current market price is 474.30

Step-by-step explanation:

The current price of the bond can be computed using the pv function in excel as stated thus:

=-pv(rate,nper,pmt,fv)

rate is semiannual yield to maturity which is 7.6%/2

nper is the 10 years of bond tenure multiplied by 2

pmt is the coupon payable which is zero

fv is the face value of the bond which is $1000

=-pv(7.6%/2,20,0,1000)=$ 474.30