A $25,000 zero coupon bond has 12 years to maturity and a yield to maturity of 7.5 percent. What is the current bond price?

Question

Quizplus · Accepted Answer

To calculate the bond price, we can use the formula:
P = F/(1+y)^n
where P is the bond price, F is the face value or maturity value of the bond, y is the yield to maturity in decimal form, and n is the number of years to maturity.

In this case, F = $25,000, y = 0.075, and n = 12. Plugging these values into the formula, we get:
P = $25,000/(1+0.075)^12
P = $10,496.35

Therefore, the current bond price is $10,496.35. Choice B is the best answer.

A $25,000 Zero Coupon Bond Has 12 Years to Maturity