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Calculate the price of a zero coupon bond that matures in 22 years if the market...

Calculate the price of a zero coupon bond that matures in 22 years if the market interest rate is 4.3 percent. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

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Answer #1

In the question above face value of the bond is not given which is an important component to calculate the price of a zero cupon bond. As the par value or face value of a corporate bond is usually stated at $1000, let us assume face value of the bond to be $1000.

Price of a Zero Cupon Bond = Face Value / (1+i)n

Where Face Value = $1000

i = market interest rate or 4.3%

n = number of years till maturity or 22 years

Therefore

Price = $1000 / (1+ 0.043)22

Price = $1000 / (1.043)22

Price = $1000 / 2.52496164461

Price = $396.05 (rounded to 2 decimal places)

The price of zero coupon bond is $396.05.

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