prashantsahni

What would an investor pay for a 25-year zero coupon bond if they required 11%? (Assume semi-annual compounding.)

A) $68.77

B) $1,035.25

C) $103.53

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N = 50, I/Y = 5.5, PMT = 0, FV = 1,000
CPT PV = 68.77

prashantsahni

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) $399.85.

B) $422.41.

C) $391.54.

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

prashantsahni

What is the value of a zero-coupon bond if the term structure of interest rates is flat at 6% and the bond has two years remaining to maturity?

A) 83.75.

B) 100.00.

C) 88.85.

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The bond price is computed as follows: Zero-Coupon Bond Price = 100/1.034 = 88.85.
The value 83.75 is incorrect because the principal is discounted over a three-year period but the bond has only two years remaining to maturity. The value 100.00 is incorrect because the principal received at maturity has to be discounted over a period of two years.

prashantsahni

A 15-year, $1,000 face value zero-coupon bond is priced to yield a return of 8.00% compounded semi-annually. What is the price of the bond, and how much interest will the bond pay over its life, respectively?

Bond Price

Interest

A) $691.68 $308.32

B) $308.32 $691.68

C) $389.75 $610.25

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Using an equation: Pricezerocoupon = Face Value × [ 1 / ( 1 + i/n)n × 2 ]

Here, Pricezerocoupon = 1000 × [ 1 / (1+ 0.080/2)15 × 2] = 1000 × 0.30832 = 308.32. So, interest = Face – Price = 1000 – 308.32 = 691.68.

Using the calculator: N = (15 × 2) = 30, I/Y = 8.00 / 2 = 4.00, FV = 1000, PMT = 0. PV = -308.32. Again, Face – Price = 1000 – 308.32 = 691.68.

prashantsahni

A zero-coupon bond matures three years from today, has a par value of $1,000 and a yield to maturity of 8.5% (assuming semi-annual compounding). What is the current value of this issue?

A) $78.29.

B) $779.01.

C) $782.91.

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The value of the bond is computed as follows:
Bond Value = $1,000 / 1.04256 = $779.01.
N = 6; I/Y = 4.25; PMT = 0; FV = 1,000; CPT → PV = 779.01.

prashantsahni

What is the yield to maturity (YTM) of a 20-year, U.S. zero-coupon bond selling for $300?

A) 7.20%.

B) 6.11%.

C) 3.06%.

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N = 40; PV = 300; FV = 1,000; CPT → I = 3.055 × 2 = 6.11.

prashantsahni

If a 15-year, $1,000 U.S. zero-coupon bond is priced to yield 10%, what is its market price?

A) $23.50.

B) $231.38.

C) $239.39.

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N = 30; I/Y = 5; PMT = 0; FV = 1,000; CPT → PV = 231.38.

prashantsahni

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) $315.

B) $464.

C) $308.

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

prashantsahni

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) $490.58.

B) $496.62.

C) $1,000.00.

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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.

prashantsahni

If the required rate of return is 12%, what is the value of a zero coupon bond with a face value of $1,000 that matures in 20 years? Assume an annual compounding period.

A) $175.30.

B) $103.67.

C) $99.33.

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I = 12
PMT = 0
FV = 1,000
N = 20
PV = ?
PV = 103.67