Calculate the price of a zero-coupon bond that matures in five years if the market interest rate is 7.50 percent. (Assume semiannual compounding and $1,000 par value.)
A)$692.02
B)$696.57
C)$962.50
D)$1,000.00

Question

Quizplus · Accepted Answer

The formula to calculate the price of a zero-coupon bond is:
Price = Face value / (1 + R)^n

Where R is the market interest rate (7.50% in semiannual terms) and n is the number of periods until maturity (10 periods, considering semiannual compounding in five years).

Price = 1000 / (1 + 0.075/2)^10
Price = 1000 / (1.0375)^10
Price = 1000 / 1.4300
Price = $ 698.35

Therefore, the answer is A) $692.02, which is the closest to the calculated price.

Calculate the Price of a Zero-Coupon Bond That Matures in Five