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Assuming semiannual compounding, what is the price of a zero coupon bond with 9 years to maturity...

Question:

Assuming semiannual compounding, what is the price of a zero coupon bond with 9 years to maturity paying $1,000 at maturity if the YTM is (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.):

a.7 percent

b.12 percent

c.17 percent

Pricing of a Bond:

A bond is issued by the issuer (organization or government) and is repaid in the form of coupon payments (annual or semi annual coupons) and face value at the maturity. A bond can be a zero coupon bond if there are no coupon payments. The price of the bond is the present value of all the payments discounted at yield to maturity.

Answer and Explanation:

a. Price of bond at 7% = $538.36

b. Price of bond at 12% = $350.34

c. Price of bond at 17% = $230.28

Calculating the price of bond at 7%:

  • Face...

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Learn more about this topic:

Bond Valuation: Formula, Steps & Examples

from Finance 301: Corporate Finance

Chapter 7 / Lesson 6
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