A newly issued 20-year maturity, zero-coupon bond is issued with a yield to maturity of 7.0% and face value $1,000. Find the imputed interest income in the last year of the bond’s life. Assume annual coupon payments. a. $13.56 b. $36.81 C. $0 d. $65.42 e. $73.44
Face Value of Zero-Coupon Bond = $1000
its Yield to Maturity(YTM) = 7%
As we have to compute Imputed Interest Income in the last year of Bond's life, first we will Calculate the Price of Zero-coupon Bond in the last year.
Since, it is a last year only 1 year is left for maturity
Price of Zero-coupon bond = Face Value/(1+YTM)^1
Price of Zero-coupon bond = $1000/(1+0.07)^1
Price of Zero-coupon bond in the last year= $934.58
- Imputed Interest Income in the last year of Bond's life = Price of Zero-coupon bond in the last year*YTM
Imputed Interest Income in the last year of Bond's life = $65.42
If you need any clarification, you can ask in comments.
If you like my answer, then please up-vote as it will be motivating
Get Answers For Free
Most questions answered within 1 hours.