A zero-coupon bond promises to pay $1,000 in ten years. The appropriate annual effective interest rate for the 10-year period is a constant 6%. Rounded to the nearest dollar, the current
Price of the bond is

Question

Quizplus · Accepted Answer

The price of a zero-coupon bond is calculated by discounting the face value using the formula: Price = Face Value / (1 + interest rate)^number of years. Here, Price = $1,000 / (1 + 0.06)^10 = $558.39, which rounds to $558.

A Zero-Coupon Bond Promises to Pay $1,000 in Ten Years