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1 December, 15:30

Calculate the price of a zero coupon bond that matures in 10 years if the market interest rate is 6 percent. (Assume semi-annual compounding and $1,000 par value.)

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  1. 1 December, 16:55
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    Price of coupon is $553.7098

    Explanation:

    Using the formula

    Price = Face value / (1+rate) ^periods

    Face value = $1,000

    Rate for semiannual = 6/2 = 3

    Periods for semiannual = 10*2 = 20

    Therefore

    Price = 1,000 / (1+0.03) ^20

    Price = 1,000 / (1.03) ^20

    Price 1000/1.806 = 553.7098
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