A zero coupon bond pays no annual coupon interest payments.When it matures at the end of 8 years it pays out $1,000.If investors wish to earn 7.5% per year on this bond investment,what is the current price of the bond?

Question

Quizplus · Accepted Answer

The current price of a zero coupon bond is calculated by discounting the face value using the formula: Price = Face Value / (1 + r)^n, where r is the interest rate and n is the number of years. Here, Price = $1,000 / (1 + 0.075)^8 = $561.

A Zero Coupon Bond Pays No Annual Coupon Interest Payments