Consider a zero-coupon bond with a $1000 face value and ten years left until maturity. If the YTM of this bond is 10.4%, then the price of this bond is closest to:

Question

Quizplus · Accepted Answer

The price of a zero-coupon bond is calculated as a function of the face value and the present value factor, which is determined by the yield to maturity. The present value factor for a 10.4% yield to maturity and ten years to maturity is 0.275. Therefore, the price of the bond is: $1000 x 0.275 = $275. Since this is the price of the bond today and not at maturity, we need to discount it back to its present value. Using the formula for present value, we have: Present Value = Future Value / (1 + r)^n, where r is the discount rate and n is the number of years. Plugging in the numbers, we get: Present Value = $275 / (1 + 10.4%)^10 = $372. Therefore, the closest answer is C, $372.

Consider a Zero-Coupon Bond with a $1000 Face Value and Ten