Zero Coupon Bond Price Calculate the price of a zero coupon bond that matures in five years if the market interest rate is 7.50 percent.(Assume semi-annual compounding and $1,000 par value.)

Question

Quizplus · Accepted Answer

We can use the formula for the present value of a zero coupon bond:

P = F/(1+r)^n

Where P is the price, F is the face value, r is the semi-annual interest rate, and n is the number of semi-annual periods.

In this case, F = $1,000, r = 0.075/2 = 0.0375, and n = 2*5 = 10.

Plugging in the values, we get:

P = 1000/(1+0.0375)^10 = $692.02

Therefore, the best choice is A, as it is the closest to the calculated price.

Zero Coupon Bond Price Calculate the Price of a Zero