Zero-coupon bonds were issued in 2005.If their implied yield to maturity is 5%,and the bonds will mature in 20 years,at what discount from the face value will they sell?
A)10%
B)25.42%
C)37.68%
D)cannot be determined, need more information

Question

Quizplus · Accepted Answer

Zero-coupon bonds are sold at a discount and do not pay interest. The discount can be calculated using the formula: Present Value = Face Value / (1 + Yield)^Years. Here, the discount is 1 - (1 / (1.05)^20) = 37.68%.

Zero-Coupon Bonds Were Issued in 2005