In: Finance
A one-year zero coupon bond issue was purchased at a price of $850. The principal value of the bond is $1,000.The zero-coupon bond: A. will be redeemed at $850 .B. will pay a fixed rate of interest. C. has an implied interest of $150.
Principal Value of Zero-Coupon Bond = $1000
Zero-coupon bond has been purchased at a discount price of $850
Since the Zero-coupon bond has been purchased at discount which is $850 and will be redeemed at $1000. The differnce amount of $150 is the implied Interest which the holder would earn.
Hence, Option C is correct.
A. Zero-coupon bond always redeem at "principal value".
B. Zero-coupon bond "does not" Interest.