Question

​Zero-coupon bond. Wesley Company will issue a zero-coupon bond this coming month. The projected bond yield is 10%. If the par value is ​$5,000​, what is the​ bond's price using a semiannual convention if

a. the maturity is 15 ​years?

b. the maturity is 35 ​years?

c. the maturity is 50 ​years?

d. the maturity is 100 ​years?

Answer 1

a)
Bond's price = FV / (1 + r / n)^(n*t)
= $5,000 / (1 + 10%/2)^(15*2)
= $1,156.89

Bond's price = $1,156.89

b)
Bond's price = $5,000 / (1 + 10%/2)^(35*2)
Bond's price = $164.33

c)
Bond's price = $5,000 / (1 + 10%/2)^(50*2)
Bond's price = $38.02

d)
Bond's price = $5,000 / (1 + 10%/2)^(100*2)
Bond's price = $0.29