A 10-year zero-coupon bond that yields 6% is issued with a $1,000 par value. What is the issuance price of the bond? Use time value of money table in Appendix B.
A) $558
B) $64
C) $614
D) $1,000

Question

Quizplus · Accepted Answer

PV = FV × PV_IF Using PV of $1 table to find the PV of the principal: i = 6%, n = 10 years. Factor = 0.558 × 1000 = $558. Interest payments are zero since it is a zero-coupon bond, meaning that the stated interest rate = 0%.

A 10-Year Zero-Coupon Bond That Yields 6% Is Issued with a $1,000