Question

Debra King is interested in buying a five-year zero coupon bond with a face value of $1,000. She understands that the market interest rate for similar investments is 11.0 percent. Assume annual coupon payments. What is the current value of this bond? (Round answer to 2 decimal places, e.g. 15.25.)

Answer 1

Answer:

$593.45

Explanation:

In order to compute the current value of this bond we need to applied the present value formula which is to be shown in the attachment

Given that,  

Future value = $1,000

Rate of interest = 11%

NPER = 5 years

PMT = $0

The formula is shown below:

= -PV(Rate;NPER;PMT;FV;type)

So, after applying the above formula, the current value of the bond is $593.45