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Homework answers / question archive / The value of a 20 year zero-coupon bond when the market required rate of return of 9% (semiannual) is
The value of a 20 year zero-coupon bond when the market required rate of return of 9% (semiannual) is .
A. $171.93 B. $178.43 C. $318.38 D. $414.64 E None of the above.
Answer
A .
Explanation
Computation of Value of Bond using PV Function in Excel:
=-pv(rate,nper,pmt,fv)
Here,
PV = Value of Bond = ?
Rate = 9%/2 = 4.5% compounded semiannually
Nper = 20 Years * 2 = 40 Periods
PMT = 0
FV = $1000
Substituting the values in formula:
=-pv(4.5%,40,0,1000)
PV or Value of Bond = $171.93
So, Value of a zero coupon bond is $171.93
