Question

Calculate the price of a zero-coupon bond that matures in 25 years if the market interest rate is 4.0 percent. Assume semiannual compounding.

(Can you please show how to do this in excel as well as on paper)

Answer 1

Price of bond is the present value of cash flow from bond.
Zero coupon bond as its name suggest it does not pay coupon throughout the life of bond.
So, price of bond is the present value of face value of bond.
Present Value of Bond			=	Face value * Present value of 1
			=	$       1,000	*	0.371528
			=	$     371.53
Thus,
	Price of zero coupon bond is $ 371.53
Working:
Present value of 1			=	(1+i)^-n			Where,
			=	(1+0.02)^-50			i	2%
			=	0.3715279			n	50
Note:
Assumed that face value of bond is $ 1,000