You are looking to purchase a zero coupon bond. The bond has 10 years until maturity and you require an 8% annual rate of return. What should you pay for this bond

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You are looking to purchase a zero coupon bond. The bond has 10 years until maturity and you require an 8% annual rate of return. What should you pay for this bond

0

Answer

Zero coupon bond value = F / (1 + r)t

Where:
F = face value of bond
r = rate or yield
t = time to maturity

Now we will put the figures in formula as follow

Let us assume that face value is 1000

8% annual rate of return

Year =10

Price = 1000/ (1+0.08)10

Solving this equation we will get

Price = 463.19

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