The Australian Treasury has issued 10-year zero coupon bonds with a face value of $1,000.Assume that coupon payments are normally semi-annual.What will be the current market price of these bonds if the opportunity cost for similar investments in the market is 6.75 percent? (Round to the nearest dollar.)

Question

Quizplus · Accepted Answer

The correct answer is A.The current market price of the bond can be calculated using the formula:Bond Price = Face Value / (1 + r/2)^2nwhere:r is the annual interest raten is the number of years to maturityIn this case, the face value is $1,000, the annual interest rate is 6.75%, and the number of years to maturity is 10. Plugging these values into the formula, we get:Bond Price = 1000 / (1 + 0.0675/2)^20= 1000 / (1.03375)^20= 1000 / 2.7232= $515.04Rounding to the nearest dollar, the current market price of the bond is $515.

The Australian Treasury Has Issued 10-Year Zero Coupon Bonds with a Face