Question

There are zero coupon bonds outstanding that have a YTM of 5.97 percent and mature in 19 years. The bonds have a par value of $10,000. If we assume semiannual compounding, what is the price of the bonds

Answer 1

market price = $1,104.20

Step-by-step explanation:

yield to maturity of zero coupon bonds = (face value / market price)¹/ⁿ - 1

• YTM = 5.97%
• n = 19 x 2 = 38
• face value = $10,000

(face value / market price)¹/ⁿ = YTM + 1

face value / market price = (YTM + 1)ⁿ

market price = face value / (YTM + 1)ⁿ

market price = $10,000 / 1.0597³⁸ = $10,000 / 9.0563 = $1,104.20