Question

A newly issued 20-year maturity, zero-coupon bond is issued with a yield to maturity of 9.5% and face value $1,000. Find the imputed interest income in: (a) the first year; (b) the second year; and (c) the last year of the bond’s life. (Round your answers to 2 decimal places.)

Answer 1

	Interest
Year -1	$ 15.47
Year-2	$ 16.94
Year-20	$ 86.76

Working:

Step-1:Price of bond today
Price of bond	=-pv(rate,nper,pmt,fv)
		= $ 162.82
Where,
rate	=	9.50%
nper	=	20
pmt	=	0
fv	=	$ 1,000.00
Step-2;Price at the end of 19 years
Price of bond	=-pv(rate,nper,pmt,fv)
		= $ 913.24
Where,
rate	=	9.50%
nper	=	1
pmt	=	0
fv	=	$ 1,000.00
Step-3:Calculation of Interest
Year	Price at the beginning	Rate of Interest	Interest		Price at the end
	a			b		c=a*b		d=a+c
1	$ 162.82			9.5%		$    15.47		$     178.29
2	$ 178.29			9.5%		$    16.94		$     195.23
19	$ 913.24			9.5%		$    86.76		$ 1,000.00