# Bond valuation : If a $1,000 zero coupon bond with a fifteen-year maturity has a market price of... ## Question: Bond valuation : If a$1,000 zero coupon bond with a fifteen-year maturity has a market price of $315.20. What is the rate of the return? ## Zero Coupon Bonds: Zero coupon bond is the bond which pays no annual coupons just the maturity amount is paid. So the price of a Zero Coupon Bond is the present value of the maturity amount of the bond. ## Answer and Explanation: Value of a ZCB = Maturity Amount / (1 + Yield)^Number of years to maturity In the question, Value of ZCB =$315.20

Maturity = \$1,000.00

Yield = Rate to be found out

Number of years to maturity = 15

Thus,

315.20 = 1000 / (1 + Yield)^15

or,

Yield = 8.00%