The value of a 20 year zero-coupon bond when the market required rate of return of 9% (semiannual) is

Accounting Apr 25, 2021

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.

Expert Solution

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

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