Question about 0 coupon bond. Pls help! bond, coupon

bri9

Here is a question from the Qbank:

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%.

Your answer: B was correct!
N = 40; PV = 300; FV = 1,000; CPT → I = 3.055 × 2 = 6.11.




I guessed it right, but my question is: why the N equals to 40? How can I tell? Are all 0 coupon bonds semi-annual or something?
Thx!

bri9

thx a lot!

shareworm

Hi mate,

Due to tax reasons and foreign investors' preferences, the Treasury doesn't issue zero-coupon notes or bonds. Therefore, technically, there's no such thing exists.

What you mentioned here is actually a principal STRIPS which derived from T-bond, since T-bond's cash flow is paid semiannually, its STRIPS ought to be discounted by its semiannual yield.

Hope these help

Best