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Your firm has issued ten-year zero-coupon bonds with a $1,000 face value. If the yieid to...

Your firm has issued ten-year zero-coupon bonds with a $1,000 face value. If the yieid to maturity is 6.75%, what is the present price of bonds?
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Answer #1

Present Market price of Bond = $495.32

Working notes

1. Intrest in above formula also known as coupon value.

For a zero coupon bond the rate of intrest or coupon rate is always zero. So, in above formula the intrest amount is taken as $0 for the calculations.

2. The formula stated above for the calculation of Yield to maturity (YTM) is standard formula for the calculation of YTM.

3. FV in the above formula can also be replaced by redemption value in case the bond is not held till maturity.

In the given case bond is held upto maturity so Face value is taken as redemption value.

If you have any query please leave your query in the comment section. so that I can clarify your query.

Thank you.

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