Vitmix Industries Inc.is issuing a zero-coupon bond that will have a maturity of fifty years.The bond's par value is $1,000,and the current yield on similar bonds is 7.5%.What is the expected price of this bond,using the semiannual convention?

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Quizplus · Accepted Answer

The price of a zero-coupon bond is calculated using the formula: Price = Par Value / (1 + r/n)^(nt), where r is the annual yield, n is the number of compounding periods per year, and t is the number of years to maturity. For a 7.5% yield, semiannual compounding (n=2), and 50 years to maturity, the price is $1,000 / (1 + 0.075/2)^(2*50) = $25.19.