Diane Carter is interested in buying a five-year zero coupon bond with a face value of...

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Diane Carter is interested in buying a five-year zero coupon bond with a face value of...

Diane Carter 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 9 percent. Assume annual coupon payments. What is the current value of this bond?

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Answer 1

Answer #1

Current value of bond=Face value/(1+interest rate)^time period

which is equal to

=$1000/(1.09)^5

=$1000/1.5386239

which is equal to

=$649.93 (Approx).

Thanks

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Answer 2

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