Question

A zero coupon bond with a face value of $1,000 is issued with an initial price...

A zero coupon bond with a face value of $1,000 is issued with an initial price of $565.01. The bond matures in 20 years. What is the implicit interest, in dollars, for the first year of the bond's life? Assume semiannual compounding.

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Answer #1

Implicit interest for 1st six months $    8.12 =565.01*1.4375%
Implicit interest for 2nd six months $    8.24 =(565.01+8.12)*1.4375%
Implicit interest for first year $ 16.36
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