How much do you pay for a zero coupon government bond that has a term of...

Question

Question

How much do you pay for a zero coupon government bond that has a term of 30 years, an interest rate of 10%, and a par value of $1000.

Answer 1

Answer #1

Par Value = $1,000

Annual Interest Rate = 10%
Semiannual Interest Rate = 5%

Time to Maturity = 30 years
Semiannual Period = 60

Current Price = $1,000 * PVIF(5%, 60)
Current Price = $1,000 / 1.05^60
Current Price = $1,000 * 0.05354
Current Price = $53.54

So, you should pay $53.54 for this bond.

Answer 2

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