Shana Norris wants to buy five-year zero coupon bonds with a face value of $1,000. Her opportunity cost is 8.5 percent. Assuming annual compounding, what would be the current market price of these bonds? (Round your answer to the nearest dollar.)

Question

Quizplus · Accepted Answer

The price of a zero coupon bond can be calculated using the following formula: 
Price = Face Value / (1 + r)n
Where r is the opportunity cost expressed as a decimal and n is the number of years until maturity.
In this case, r = 8.5% or 0.085, n = 5 years and Face Value = $1,000.
Plugging in these values, we get: 
Price = 1000 / (1 + 0.085)5
Price = $665 (rounded to the nearest dollar)
Therefore, the best choice is B.

Shana Norris Wants to Buy Five-Year Zero Coupon Bonds with a Face