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1 February, 21:33

Navarro, Inc., plans to issue new zero coupon bonds with a par value of $1,000 to fund a new project. The bonds will have a YTM of 5.31 percent and mature in 30 years. If we assume semiannual compounding, at what price will the bonds sell?

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  1. 2 February, 01:13
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    The bond will sell at $4831.43

    Explanation:

    Given C = 0, FV = $1000, YTM = 5.31%, n = 30 years

    BV=?

    BV for a zero coupon bond is = F / (1+r) ^-n*t

    So we are told there is semi annual compounding

    have to calculate

    n = 30*2 = 60 periods

    r = 5.31/2 = 2.66%

    BV = 1000 / (1+0.0266) ^-60

    =$4831.43
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