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Marco Chip, Inc
Marco Chip, Inc. just issued zero-coupon bonds with a par value of $1,000. The bond has a maturity of 12 years and a yield to maturity of 12.19 percent, compounded semi-annually. What is the current price of the bond?
Expert Solution
Answer:
current price of the bond=241.73
Step-by-step explanation
the price of a zero coupon bond is calculated using the following formula:
?ZCB price=(1+r)nFV??
where:
FV = face value
r =yield to maturity
n time to maturity:
since it is compounded semi-annually, we first calculate the semiannual YTM(r) and period(n);
?r=212.19%?=6.095%=0.06095?
?n=12∗2=24?
substituting the values into the formula:
?ZCB price=(1+0.06095)241000??
?ZCB price=(1.06095)241000??
?ZCB price=4.1369284661000??
?ZCB price=241.7252336?
?ZCB price=241.73?
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