Assume that the following data on U.S. Treasury securities is current:
-Refer to the information above. According to the term structure, what would you have to pay for a $1,000, zero-coupon, Treasury bond that matures in five years?
A)$958.22
B)$808.62
C)$807.85
D)none of the above

Question

Assume that the following data on U.S. Treasury securities is current: 
-Refer to the information above. According to the term structure, what would you have to pay for a $1,000, zero-coupon, Treasury bond that matures in five years?
A)$958.22 
B)$808.62 
C)$807.85 
D)none of the above

Quizplus · Accepted Answer

The TB8263_00 represents the yield for a 5-year Treasury security, which is 2.57%. Using the formula for present value of a zero-coupon bond, P = F / (1 + r)^n, where F is the face value of the bond, r is the interest rate, and n is the number of years until maturity, we can calculate the price of the bond as follows:
P = 1000 / (1 + 0.0257)^5 = $807.85. Therefore, the correct choice is C. To calculate the price of a zero-coupon bond, we use the following formula:

Price = Face Value / (1 + Yield) ^ Time to Maturity

Using the data provided, we can find the yield for a 5-year Treasury bond by looking at the yield for the closest maturity, which is the 4-year bond with a yield of 1.58%.

Plugging this into the formula, we get:

Price = 1000 / (1 + 0.0158) ^ 5 = $807.85

Therefore, the correct answer is choice C.

Assume That the Following Data on U