Question

Ten-year zero coupon bonds issued by the U.S. Treasury have a face value of $1,000 and interest is compounded semiannually. If similar bonds in the market yield 7.8 percent, what is the value of these bonds? (Round answer to 2 decimal places, e.g. 15.25.)

Cullumber Real Estate Company management is planning to fund a development project by issuing 10-year zero coupon bonds with a face value of $1,000. Assuming semiannual compounding, what will be the price of these bonds if the appropriate discount rate is 11.2 percent? (Round answer to 2 decimal places, e.g. 15.25.)

Answer 1

K = Nx2

Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2

k=1

K =10x2

Bond Price =∑ [(0*1000/200)/(1 + 7.8/200)^k]     +   1000/(1 + 7.8/200)^10x2

k=1

Bond Price = 465.25

K = Nx2

Bond Price =∑ [(Semi Annual Coupon)/(1 + YTM/2)^k]     +   Par value/(1 + YTM/2)^Nx2

k=1

K =10x2

Bond Price =∑ [(0*1000/200)/(1 + 11.2/200)^k]     +   1000/(1 + 11.2/200)^10x2

k=1

Bond Price = 336.3