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Homework answers / question archive / Highland Ltd has a 5-year bond whose yield to maturity is 6
Highland Ltd has a 5-year bond whose yield to
maturity is 6.5% per annum, compounded semi-
annually. The bond has a face value of $1000 with
no coupon payments. What is the price of this
zero coupon bond?
Computation of Price of Zero Coupon Bonds using PV Function in Excel:
=-pv(rate,nper,pmt,fv)
Here,
PV = Price of Zero Coupon Bonds = ?
Rate = 6.5%/2 = 3.25% compounded semiannually
Nper = 5 Years*2 = 10 Periods (Semiannual)
PMT = 0
FV = $1,000
Substituting the values in formula:
=-pv(3.25%,10,0,1000)
PV or Price of Zero Coupon Bonds = $726.27
