Calculate the price of a zero coupon bond that matures in 10 years if the market interest rate is 6 percent

Finance Apr 19, 2021

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

Expert Solution

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.

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