EXIT
The interest rate on a 10 percent, 10-year zero-coupon bond with a $1,000 face value falls from 8 percent to 7 percent. Which of the following is true of the value of the bond? (Round the answer to two decimal places.)
A. The present value of the bond at 7 percent is $463.19.
B. The maturity value of the bond at 7 percent is $508.34.
C. The present value of the bond at 7 percent is $508.34.
D. The maturity value of the bond at 8 percent is $508.34.
E. The present value of the bond at 8 percent is $508.34.
Present Value of the Bond if the interest rate falls from 8 percent to 7 percent
The Present Value of a Zero-Coupon Bond is the Present Value of the Face Value of the Bond
Face Value = $1,000
Yield to Maturity (YTM) of the Bond = 7%
Number of periods = 10 Years
The Present Value of the Bond = Face Value / (1 +YTM)n
= $1,000 / (1 + 0.07)10
= $1,000 / 1.96715
= $508.34
Therefore, the answer would be “(C). The present value of the bond at 7 percent is $508.34”
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