Question

There are zero coupon bonds outstanding that have a YTM of 5.91 percent and mature in 20 years. The bonds have a par value of $10,000. If we assume semiannual compounding, what is the price of the bonds

Answer 1

Answer:

$3,119.62

Explanation:

We use the present value formula i.e to be shown in the attached spreadsheet below:

Given that,  

Future value = $10,000

Rate of interest = 5.91%  ÷ 2 = 2.96%

NPER = 20 years  × 2 = 40 years

PMT = $0

The formula is shown below:

= -PV(Rate;NPER;PMT;FV;type)

So, after solving this, the price of the bond is $3,119.62