Suppose you purchase a zero-coupon bond with a face value of $1,000, maturing in 18 years, for $455

Finance Dec 27, 2020

Suppose you purchase a zero-coupon bond with a face value of $1,000, maturing in 18 years, for $455. If the yield to maturity on the bond remains unchanged, what will be the price of the bond 5 years from now?

Expert Solution

Yield to maturity = (Face value / price)^1/periods - 1

Yield to maturity = (1000 / 455)^1/18 - 1

Yield to maturity = (2.1978)^1/18 - 1

Yield to maturity = 1.04472 - 1

Yield to maturity = 0.04472 or 4.472%

Price = Face value / (1 + rate)^periods

Price = 1000 / (1 + 0.04472)^13

Price = 1000 / 1.76603

Price = $566.24

Archived Solution

Unlocked Solution

You have full access to this solution. To save a copy with all formatting and attachments, use the button below.

Already a member? Sign In

Important Note: This solution is from our archive and has been purchased by others. Submitting it as-is may trigger plagiarism detection. Use it for reference only.

For ready-to-submit work, please order a fresh solution below.

Or get 100% fresh solution

Get Custom Quote