Question

Assuming semiannual compounding, what is the price of a zero coupon bond with 13 years to maturity paying $1,000 at maturity if the YTM is (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.):

4 percent
8 percent
12 percent

Answer 1

For a zero coupon bond:

Price of a bond = FV / (1 + semi annual rate)^number of periods

Maturity = 13

Number of payments = 13*2 =26

FV = 1000

For YTM =4%:

Semi-annual YTM = 2%

Price of bond = 1000 / (1+ 0.02)^26

Price of bond = 597.58 Answer

For YTM = 8%:

Semi-annual YTM = 4%

Price of bond = 1000 / (1+ 0.04)^26

Price of bond = 360.69 Answer

For YTM = 12%:

Semi-annual YTM = 6%

Price of bond = 1000 / (1+ 0.06)^26

Price of bond = 219.81 Answer

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