1215

A zero-coupon bond has a yield to maturity of 9.6% (annual basis) and a par value of $1,000. If the bond matures in 10 years, today's price of the bond would be:

A) $422.41.

B) $391.54.

C) $399.85.

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I = 9.6; FV = 1,000; N = 10; PMT = 0; CPT → PV = 399.85

1215

A 12-year, $1,000 face value zero-coupon bond is priced to yield a return of 7.50% compounded semi-annually. What is the bond’s price?

A) $250.00

B) $413.32.

C) $419.85.

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Using an equation: Price_zerocoupon = Face Value × [ 1 / ( 1 + i/n)^{n × 2}]

Here, Price_zerocoupon = 1000 × [ 1 / (1+ 0.075/2)^{12 × 2}] = 1000 × 0.41332 = 413.32.

Using the calculator: N = (12 × 2) = 24, I/Y = 7.50 / 2 = 3.75, FV = 1000, PMT = 0. PV = -413.32

1215

Janet Preen is considering buying a 10-year zero-coupon bond that has a $1,000 face value and is priced to yield 7.25% (semi-annual compounding). What price will Janet pay for the bond?

A) $496.62.

B) $1,000.00.

C) $490.58.

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N = 10 × 2 = 20; I/Y = 7.25/2 = 3.625; PMT = 0; FV = 1,000; Compute PV = 490.58 or $1,000/(1.03625)²⁰ = $490.58.

1215

A 15-year zero coupon bond that has a par value of $1,000 and a required return of 8% would be priced at what value assuming annual compounding periods:

A) $464.

B) $315.

C) $308.

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N = 15 FV = 1,000
I = 8
PMT = 0
PV = ?
PV = 315.24