Question

compute the value of 1,000 par value zero coupon bond with 15 years to maturity given...

compute the value of 1,000 par value zero coupon bond with 15 years to maturity given a 7% market rate of return.

a) 1,000

b) 362.45

c) 315.24

d) 239.39


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Homework Answers

Answer #1

The current value of bond can be calculated with the use of PV (Present Value) function/formula of EXCEL/Financial Calculator. The function/formula for PV is PV(Rate,Nper,PMT,FV) where Rate = Interest Rate (here, Market Rate of Return), Nper = Period, PMT = Payment (here, Coupon Payment) and FV = Future Value (here, Face or Par Value of Bond).

_____

Solution:

Here, Rate = 7%, Nper = 15, PMT = 1,000*0% = $0 and FV = $1,000

Using these values in the above function/formula for PV, we get

Current Value of Bond (Present Value) = PV(7%,15,0,1000) = $362.45 (which is Option B)

Answer is $362.45

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