Question

Ted's Co. offers a zero coupon bond with an 11.3% yield to maturity. The bond matures in 16 years. What is the current price of a $1,000 face value bond

Answer 1

Answer:

Zero-cupon bond= $835.45

Explanation:

Giving the following information:

Face value= $1,000

YTM= 11.3%

Years to maturity= 16 years

To calculate the price of the bond, we need to use the following formula:

Zero-cupon bond= [face value/(1+i)^n]

Zero-cupon bond= 1,000 / (1.113^16)

Zero-cupon bond= $835.45