This morning Tim purchased a 15-year, $1,000 face value zero-coupon bond for $394.34. Assume the yield-to-maturity remains constant over the life of the bond. What price should Tim receive for his bond if he wants to sell it 4 years from today?

Question

Quizplus · Accepted Answer

The correct answer is A because the price of a zero-coupon bond is equal to the present value of its face value, discounted at the yield-to-maturity. In this case, the yield-to-maturity is 5%, so the price of the bond 4 years from today will be $394.34 * (1 + 0.05)^4 = $505.40.

This Morning Tim Purchased a 15-Year, $1,000 Face Value Zero-Coupon