Question

You find a zero coupon bond with a par value of $10,000 and 20 years to maturity. The yield to maturity on this bond is 4.2 percent. Assume semiannual compounding periods. What is the price of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

Price of bond=Par value/(1+YTM/2)^(2*time period)

=$10,000/(1+0.042/2)^(2*20)

=$10,000/(1.021)^40

=$10,000*0.435482108

=$4354.82(Approx).