Zero Coupon Bond Price Calculate the price of a zero coupon bond that matures in 10 years if the market interest rate is 6 percent.(Assume semi-annual compounding and $1,000 par value.)

Question

Quizplus · Accepted Answer

A zero coupon bond does not pay interest along the way, but is issued at a discount and redeemed at face value at maturity, so the price can be calculated using the following formula:
P = F / (1 + r/n)^(n*t)
Where P is the price of the bond, F is the face value of the bond, r is the market interest rate, n is the number of compounding periods per year, and t is the number of years to maturity.
Plugging in the given values, we get:
P = 1000 / (1 + 0.06/2)^(2*10) = 553.68
Therefore, the best choice is A) $553.68.

Zero Coupon Bond Price Calculate the Price of a Zero