Consider a zero-coupon bond with a $1 000 face value and 10 years left until maturity. If the YTM of this bond is 10.4%, then the price of this bond is closest to:

Question

Quizplus · Accepted Answer

The price of a zero coupon bond can be calculated using the formula:
Price = Face Value / (1 + YTM)^n
where n is the number of years until maturity.

Substituting the given values, we get:
Price = 1,000 / (1 + 0.104)^10
Price = 1,000 / 2.837
Price = $352.32

Since the face value is $1,000, the price must be multiplied by 1,000 to get the actual price of the bond.
Price = $352.32 * 1,000
Price = $352,320

Since none of the answer choices are exactly $352,320, we must choose the closest option, which is C) $372.

Consider a Zero-Coupon Bond with a $1 000 Face Value