Highland Corp., a U.S. company, has a five-year bond whose yield to maturity is 6.5 percent. The bond has no coupon payments. What is the price of this zero coupon bond?
A) $927.83
B) $725.27
C) $890.45
D) $1,113.23

Question

Quizplus · Accepted Answer

The price of a zero coupon bond can be calculated using the formula: PV = FV/(1+r)^n, where PV is the present value or price, FV is the face value of the bond, r is the yield to maturity, and n is the number of years to maturity. 
In this case, the face value is not given, so we assume it to be $1,000 (a common convention). 
Thus, PV = 1,000/(1+0.065)^5 = $725.27. 
Therefore, the correct answer is B.