ADP Corp issues zero-coupon bonds that have 20 years remaining until maturity. If investors require a 9.5% annual rate of return on these bonds, what is the market value for each bond? The bond is semiannual compounding with standard par value of $1,000.
The market value for each bond is computed as shown below:
The annual rate is computed as follows:
= 9.5% / 2 (Since the bond is semi annual compounding, hence divided by 2)
= 4.75% or 0.0475
N is computed as follows:
= 20 x 2 (Since the bond is semi annual compounding, hence multiplied by 2)
= 40
So, the price of the bond will be:
= Par value / (1 + rate of return)n
= $ 1,000 / (1 + 0.0475)40
= $ 156.26 Approximately
Feel free to ask in case of any query relating to this question
ADP Corp issues zero-coupon bonds that have 20 years remaining until maturity. If investors require a...
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