Question

1Brandon, Inc., will issue zero coupon bonds with a par value of $1,000. The bonds will have a YTM of 5.97 percent and mature in 25 years. Assuming semiannual compounding, at what price will the bonds sell?

2 Two years ago, Robert invested $2,650. Today, it is worth $3,450. Determine the interest rate for Robert's investment?

Answer 1

Hello SIr/ Mam

Q - 1 - YOUR REQUIRED ANSWER IS PV = $229.77

Given that:

FV = $1,000

PMT= 0

YTM = 5.97%/2

Periods to maturity = 25*2 = 50

Using excel function, "=PV(5.97%/2,25*2,0,-1000,0)", we get PV = $229.77

Q - 2 - YOUR REQUIRED ANSWER IS Rate = 14.1%

PV = $2,650

FV = $3,450

n = 2 years

Using excel function, "=RATE(2,0,-2650,3450,0)", we get Rate = 14.1%

I hope this solves your doubt.

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