honeycfa

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) 88.85.

B) 83.75.

C) 100.00.

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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.

honeycfa

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

A) $1,035.25

B) $103.53

C) $68.77

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

honeycfa

The value of a 10-year zero-coupon bond with a $1,000 maturity value, compounded semiannually, and has an 8% discount rate is closest to:

A) $456.39.

B) $200.00.

C) $463.19.

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V = (maturity value)/(1 + i)^{number of years x 2} = $1,000/(1.04)^{10 x 2} = $1,000/2.1911 = $456.39

or

n = 20, i = 4, FV = 1,000, compute PV = 456.39.

honeycfa

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.