A 5-year zero-coupon bond was issued with a $1,000 par value to yield 8%. What is the approximate market value of the bond?
A) $597
B) $681
C) $275
D) $482

Question

Quizplus · Accepted Answer

The formula for calculating the present value of a zero-coupon bond is:

Present value = Face value / (1 + r)^n

Where:

r = yield / 100 (in decimal form)
n = number of years until maturity

Substituting the given values, we get:

Present value = 1,000 / (1 + 0.08)^5
Present value = 1,000 / 1.469
Present value = $681 (rounded to the nearest dollar)

Therefore, the best choice is B, $681.

A 5-Year Zero-Coupon Bond Was Issued with a $1,000 Par