The following is a list of prices for zero coupon bonds with different maturities and par value of $1,000. $$\begin{array} { | l | l | }
\hline \text { Maturity (Years) } & \text { Price } \
\hline 1 & \$ 925.16 \
\hline 2 & \$ 862.57 \
\hline 3 & \$ 788.66 \
\hline 4 & \$ 711.00 \
\hline
\end{array}$$
What is the price of a 4-year maturity bond with a 10% coupon rate paid annually? (Par value = $1,000)

Question

The following is a list of prices for zero coupon bonds with different maturities and par value of $1,000. $$\begin{array} { | l | l | } 
\hline \text { Maturity (Years) } & \text { Price } \
\hline 1 & \$ 925.16 \
\hline 2 & \$ 862.57 \
\hline 3 & \$ 788.66 \
\hline 4 & \$ 711.00 \
\hline
\end{array}$$
What is the price of a 4-year maturity bond with a 10% coupon rate paid annually? (Par value = $1,000)

Quizplus · Accepted Answer

The price of a bond is the present value of its future cash flows, which include the annual coupon payments and the par value at maturity. The 4-year zero-coupon bond's yield can be used to discount these cash flows. The yield is calculated as $(1000/711)^{1/4} - 1$. Using this yield, the present value of the 4 annual $100 coupon payments and the $1,000 par value is $1,035.66.

The Following Is a List of Prices for Zero Coupon