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Homework answers / question archive / Zero coupon bonds: 10-year zero coupon bonds issued by the Queensland Treasury have a face value of $1000 and interest is compounded semiannually

Zero coupon bonds: 10-year zero coupon bonds issued by the Queensland Treasury have a face value of $1000 and interest is compounded semiannually

Finance

Zero coupon bonds: 10-year zero coupon bonds issued by the Queensland Treasury

have a face value of $1000 and interest is compounded semiannually. If similar bonds in

the market yield 11.32 percent, what is the value of these bonds?

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We can calculate the value of the bond by using the following formula in excel:-

=-pv(rate,nper,pmt,fv)

Here

PV = Value of the bond

Rate = 11.32%/2 = 5.66% (semiannual)

Nper = 10*2 = 20 periods (semiannual)

Pmt = 0

FV = $1,000

Substituting the values in formula:

= -pv(5.66%,20,0,1000)

= $332.50

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