If you purchase a five-year, zero-coupon bond for $500, how much could it be sold for three years later if interest rates have remained stable?

Question

Quizplus · Accepted Answer

The correct answer is C.The bond's price three years later can be calculated using the formula:Price = Face value / (1 + interest rate)^number of yearsIn this case, the face value is $1000, the interest rate is 14.87%, and the number of years is 3.Plugging these values into the formula, we get:Price = 1000 / (1 + 0.1487)^3Price = 1000 / 1.5395Price = $757.86

If You Purchase a Five-Year, Zero-Coupon Bond for $500, How