A zero coupon bond with a face value of $1,000 is issued at an initial price of $474.20 and a 25-year maturity.What is the implicit interest,in dollars,for the first year of the bond's life? Assume semiannual interest.

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Quizplus · Accepted Answer

$474.20 = $1,000 / (1 + r)²⁵^×2 r = 1.5034% 11ea6c22_9304_93ec_9716_ffca18dedf98_TB1200_00 Bond value = $1,000 / (1 + 0.015034)^24×2 = $488.57 11ea6c22_9304_93ed_9716_c1c88306e5fc_TB1200_00 Implicit interest = $488.57 - $474.20 = $14.37

A Zero Coupon Bond with a Face Value of $1,000