Question

One year from now, you are considering the purchase of a 3 year zero coupon bond with a par value of 1,000. What price would you pay for the bond in one year

Answer 1

Answer:

B). $821

Explanation:

Three-year-rate one year from now = [(1.05)(1.0659)(1.068)(1.07)]/(1.05) - 1]

The three-year-rate one year from now = 6.80%

The value of 3-year-zero coupon bond = $\frac{1000}{(1.068)^{3} }$

Value of 3-year-Zero Coupon Bond = $820.8924

Rounded off to the nearest dollar = $821

∴ Thus, the price for the bond in one year is $821