Robertsons, Inc., is planning to expand its specialty stores into five other states and finance the expansion by issuing 15-year zero coupon bonds with a face value of $1,000. If your opportunity cost is 8 percent and similar coupon-bearing bonds will pay semiannually, what will be the price at which you will be willing to purchase these bonds? (Round your answer to the nearest dollar.)

Question

Quizplus · Accepted Answer

The correct answer is A because the price of a zero-coupon bond is the present value of its face value, discounted at the opportunity cost. In this case, the face value is $1,000, the opportunity cost is 8%, and the time to maturity is 15 years. Using the formula for the present value of a single sum, we get:PV = FV / (1 + r)^nPV = 1000 / (1 + 0.08)^15PV = $308.33