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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. If similar bonds in
the market yield 11.32 percent, what is the value of these bonds?
Expert Solution
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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