Ted NV offers a zero coupon bond with an 11.3% yield to maturity.The bond matures in 16 years. What is the current price of a €1,000 face value bond?

Question

Quizplus · Accepted Answer

To calculate the current price of the bond, we can use the formula:
P = F / (1 + y)^n
Where P is the current price, F is the face value (€1,000), y is the yield to maturity (11.3% or 0.113), and n is the number of years to maturity (16).

Plugging in the values, we get:
P = 1000 / (1 + 0.113)^16
P = 1000 / 8.246
P = €121.24

Therefore, the current price of the bond is €121.24, which is closest to answer B, €180.33.

Ted NV Offers a Zero Coupon Bond with an 11