Question

Assuming semiannual compounding, what is the price of a zero coupon bond with 7 years to maturity paying $1,000 at maturity if the YTM is (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.):

		Price of the Bond
a.	5 percent	$
b.	10 percent	$
c.	15 percent	$

Answer 1

Price of bond=$1000/(1+YTM/2)^(2*time to maturity)

a.Price of bond=1000/(1+0.05/2)^(2*7)

=1000*0.707727196

=$707.73(Approx)

b.Price of bond=1000/(1+0.1/2)^(2*7)

=1000*0.505067953

=$505.07(Approx)

c.Price of bond=1000/(1+0.15/2)^(2*7)

=1000*0.363313471

=$363.31(Approx)

	Price of bond
a.5%	$707.73(Approx)
b.10%	$505.07(Approx)
c.15%	$363.31(Approx)