Question

Item 7Item 7 Calculate the price of a zero-coupon bond that matures in 15 years if the market interest rate is 3.5 percent. Assume semiannual compounding. (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Answer 1

Information provided:

Par value= future value= $1,000

Time= 15 years*2= 30 semi-annual periods

Interest rate= 3.5%/2= 1.75% per semi-annual period

The price of the bond is calculated by computing the present value.

Enter the below in a financial calculator to compute the present value:

FV= 1,000

N= 30

I/Y= 1.75

Press the CPT key and PV to compute the present value.

The value obtained is 594.2476.

Therefore, the price of the zero coupon bond is $594.25.

In case of any query, kindly comment on the solution.