Ted's Co.offers a zero coupon bond with an 11.3% yield to maturity.The bond matures in 16 years.What is the current price of a $1,000 face value bond?

Question

Quizplus · Accepted Answer

Using the formula for calculating the price of a zero coupon bond:

Price = Face value / (1 + YTM)^n

where YTM is the yield to maturity expressed as a decimal and n is the number of years to maturity.

In this case, the face value is $1,000, the YTM is 11.3% or 0.113, and n is 16.

Plugging in the values:

Price = 1000 / (1 + 0.113)^16
Price = $180.33

Therefore, the current price of the bond is $180.33.

Option B is the correct answer.

Ted's CoOffers a Zero Coupon Bond with an 11