Question

A newly issued 20-year, $1,000, zero coupon bond just sold for $311.05. What is the implicit interest, in dollars, for the first year of the bond's life

Answer 1

Answer: $18.70

Explanation:

Based on the information given in the question, let the yield be represented by i

The beginning value of the coupon is $311.05.

The ending value is calculated as $329.75

Implicit interest will now be:

= $329.75 - $311.05

= $18.70

Check attachment for further explanation.