Question

There are zero coupon bonds outstanding that have a YTM of 5.85 percent and mature in 21 years The bonds have a par value of $10.000. If we assume semiannual the bonds? compounding. what is the price of:________. a) $2,860.19 b) $2,880.05 c) $2,979.36 d) $3,030.34 e) $2,904.88

Answer 1

Zero-cupon bond= $2,979.36

Step-by-step explanation:

Giving the following information:

YTM= 0.0585/2= 0.02925

Number of periods= 21*2= 42 semesters

Par value= $10,000

To calculate the price of the bond, we need to use the following formula:

Zero-cupon bond= [face value/(1+i)^n]

Zero-cupon bond= [10,000 / (1.02925^42)]

Zero-cupon bond= $2,979.36