Question

# A newly issued 20-year maturity, zero-coupon bond is issued with a yield to maturity of 7.0%...

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

= \$934.58*7%

Imputed Interest Income in the last year of Bond's life = \$65.42

Option D

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