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18 January, 04:58

A zero-coupon bond pays no annual coupon interest payments. When it matures at the end of 10 years it pays out $1,000. If investors wish to earn 6.5% per year on this bond investment, what is the current price of the bond?

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  1. 18 January, 05:59
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    Answer: $532.73 (2 d. p)

    Explanation:

    Price of a zero coupon bond = M / (1 + r) ^n

    M is the price at maturity which is = $1000

    r is the required rate of interest which is = 6.5%

    n is number of years until maturity which is 10 years.

    Price is therefore:

    =1000 / (1+0.065) ^10

    =1000/1.065^10

    =532.726

    =$532.73 (2 d. p)

    NB: 6.5% is

    6.5/100 = 0.065
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Home » Business » A zero-coupon bond pays no annual coupon interest payments. When it matures at the end of 10 years it pays out $1,000. If investors wish to earn 6.5% per year on this bond investment, what is the current price of the bond?
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