Ted's Co. offers a zero coupon bond with an 11.3% yield to maturity. The bond matures in 16 years. What is the current price of a $1,000 face value bond?

Question

Quizplus · Accepted Answer

To calculate the price of a zero coupon bond, we need to use the formula:

P = F / (1 + y)^n

where P is the price, F is the face value, y is the yield to maturity, and n is the number of years to maturity.

We are given F = $1,000, y = 11.3%, and n = 16. Plugging these values into the formula, we get:

P = $1,000 / (1 + 0.113)^16 = $180.33

Therefore, the current price of the bond is $180.33.

The best choice is B.

Ted's Co Offers a Zero Coupon Bond with an 11