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#3) You are considering investing in a 10-year zero coupon bond that compounds interest semi-annually. The...

#3) You are considering investing in a 10-year zero coupon bond that compounds interest semi-annually. The face value of the bond is $1,000. If the current market rate is 5.90 percent, what is the maximum price you should have to pay for this bond?

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Answer #1

Face Value of 10-year Zero-coupon Bond = $1000

Current Market Rate(YTM) = 5.90%

Calculating the Price of Zero-coupon Bond:-

where, r = Semi-annual YTM = 5.90%/2 = 2.95%

n = no of periods = 10 years*2 = 20

Price = $559.08

So,the maximum price you should have to pay for this bond is $559.08

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