A risk-free,zero-coupon bond has 15 years to maturity.Which of the following is closest to the price per $100 of face value that the bond will trade at if the YTM is 7%?

Question

Quizplus · Accepted Answer

We can use the formula for the price of a zero-coupon bond:

Price = Face Value / (1 + YTM)^n

where YTM is the yield to maturity and n is the number of years to maturity.

Plugging in the numbers given:

Price = 100 / (1 + 0.07)^15
Price = 100 / 2.624
Price = 38.12

The closest answer choice to this is C) $36.24.

A Risk-Free,zero-Coupon Bond Has 15 Years to Maturity