Jackson's has $1,000 face value,zero-coupon bonds outstanding that mature in 13.5 years.What is the current value of one of these bonds if the market rate of interest is 7.6 percent? Assume semiannual compounding.

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Quizplus · Accepted Answer

The current value of a zero-coupon bond can be calculated using the formula: $PV = \frac{FV}{(1 + r)^n}$, where PV is the present value of the bond, FV is the face value, r is the semiannual interest rate, and n is the total number of compounding periods. Given a face value (FV) of $1,000, an annual interest rate of 7.6% (which becomes 3.8% semiannually since 7.6%/2 = 3.8%), and a maturity of 13.5 years (which translates to 27 periods since 13.5*2 = 27), the calculation is as follows: $PV = \frac{1000}{(1 + 0.038)^{27}}$, which equals approximately $365.32.

Jackson's Has $1,000 Face Value,zero-Coupon Bonds Outstanding That Mature in 13.5