A one-year zero coupon bond issue was purchased at a price of$850. The principal value...

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.

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Expert Solution

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.

jeff jeffy answered 2 years ago

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