Calculate the price of a zero-coupon bond that matures in 10 years if the market interest rate is 6 percent. (Assume semiannual compounding and $1,000 par value.)
A) $553.68
B) $558.66
C) $940.00
D) $1,000.00

Question

Quizplus · Accepted Answer

The price of a zero-coupon bond can be calculated using the formula: Price = Par Value / (1 + r)^n, where r is the market interest rate per period and n is the total number of periods. With semiannual compounding, the market interest rate per period is 3% (6% annual rate divided by 2), and there are 20 periods (10 years times 2). Therefore, the price = $1,000 / (1 + 0.03)^20 = $553.68.

Calculate the Price of a Zero-Coupon Bond That Matures in 10