You find a zero coupon bond with a par value of $10,000 and 29 years to maturity. The yield to maturity on this bond is 5.1 percent. Assume semiannual compounding periods. What is the price of the bond

The price of the bond is $2,321.30

Explanation:

In this question, we are concerned with calculating the price of the bond.

We can calculate this mathematically by using the formula below;

Price of bond = P : (1 + r/n) ^nt

where P = par value of coupon bond = 10,000

r is the interest rate = 5.1% = 5.1/100 = 0.051

n = number of times yield to maturity is compounded. Since it is semi-annually, it means it is twice per year and thus, n = 2

t is the number of years to maturity = 29 years

Plugging these values into the equation above, we have

Price of bond = 10,000 : (1 + 0.051/2) ^ (2) (29)

Price of bond = 10,000 : (1.0255) ^58

Price of bond = $2,321.30