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You purchase a zero coupon bond with 22 years to maturity and a yield to maturity...

You purchase a zero coupon bond with 22 years to maturity and a yield to maturity of 5.49 percent. The bond has a par value of $1,000. What is the implicit interest for the first year? Assume semiannual compounding

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Answer:

Current price of ZCB = Redemption / (1 + 0.0549/2)^44

Current price of ZCB = 1000 / 3.292

Current price of ZCB = $303.7667

Price of ZCB after one year = Redemption / (1 + 0.0549/2)^42

Price of ZCB after one year = 1000 / 3.11852516

Price of ZCB after one year = $320.6644

3. Implied Interest = Price after one year – Current Price

Implied Interest = $320.6644– $303.7667 = $16.90

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