Question

A 15-year, $1,000 par value zero-coupon rate bond is to be issued to yield 9 percent. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. a. What should be the initial price of the bond

Answer 1

Answer:

$274.54

Explanation:

Given:

n = 15 years

Future Value, FV = 1000

rate, r = 9%

Required:

Find the initial price of the bond

Given that we have a zero coupon bond here, it means the par value is paid at date of maturity, and no issuer pays no regular coupon payment.

To find the initial price of the bond, use the formula:

$\frac{FV}{(1+r)^n}$

Substitute figures:

$\frac{1000}{(1+0.09)^1^5}$

$= \frac{1000}{(1.09)^1^5}$

$= \frac{1000}{3.642}$

$= 274.57$

The initial price of the bond should be $274.54