There are zero coupon bonds outstanding that have a YTM of 5.37 percent and mature in...

Question

Question

There are zero coupon bonds outstanding that have a YTM of 5.37 percent and mature in 19 years. The bonds have a par value of

Answer 1

Answer #1

Face value of the bond = FV = $10000

YTM = 5.37%

Zero-coupon bond pays zero coupons and they only pay the face value of the bond at maturity

Semi-annual compounding

Time to maturity = 19 years

No. of semi-annual periods = n = 19*2 = 38

Present value of the bond is calculated using the formula:

$PV = \frac{FV}{(1+\frac{YTM}{2})^{^{^{n}}}}$

PV = 10000/(1+(5.37%/2))³⁸ = 10000/(1+2.685%)³⁸ = 10000/1.02685³⁸ = 3653.70699926948

Answer -> Price of the bond = $3,653.71

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Answer 2

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