Fill This Form To Receive Instant Help
Homework answers / question archive / Calculate the price of a zero coupon bond that matures in 10 years if the market interest rate is 6 percent
Calculate the price of a zero coupon bond that matures in 10 years if the market interest rate is 6 percent. (Assume semi-annual compounding and $1,000 par value.) A) $553.68 B) $558.66 C) $940.00 D) $1,000.00
Answer
A )
Explanation
Computation of Price of a Zero Coupon Bond using PV Function in Excel:
=-pv(rate,nper,pmt,fv)
Here,
PV = Price of Zero Coupon Bond = ?
Rate = 6%/2 = 3%
Nper = 10 years * 2 = 20 Periods
PMT = 0
FV = $1,000
Substituting the values in formula:
=-pv(3%,20,0,1000)
PV or Price of Bond = $553.68
So, Price of zero coupon bond is $553.68 If you have any doubt you can ask me through comment box.