A zero coupon bond is a bond that pays no return until it comes due and then pays the holder of the bond its face value.Suppose that a $4,000 zero coupon bond will come due on January 1, 2020.If the interest rate is 5% and will remain 5% forever, what will this bond be worth on January 1, 2005?

Question

Quizplus · Accepted Answer

The present value of the bond in 2005 can be calculated using the formula: 
Present Value = Face Value / (1+interest rate)^number of years 
Here, face value = $4,000, interest rate = 5%, and number of years = 15 (from 2005 to 2020). 
So, Present value = $4,000 / (1+0.05)^15 = $1,951.81 
Therefore, the correct option is D, which is the closest to this value, after adjusting for rounding.

A Zero Coupon Bond Is a Bond That Pays No