Question

Suppose you purchase a zero coupon bond with a face value of ​$1,000​, maturing in 21 ​years, for ​$215.00. Zero coupon bonds pay the investor the face value on the maturity date. What is the implicit interest in the first year of the​ bond's life?

The implicit interest in the first year of the​ bond's life is ?  ​(Round to the nearest​ cent.)

Answer 1

$ 16.33

Step-1:Calculation of interest rate
Future value	=	Present Value*(1+i)^n	Where,
$ 1,000.00		=	215*(1+i)^21		i	=	?
4.6512		=	(1+i)^21			n	=	21
4.6512	^(1/21)	=	1+i
1.0759		=	1+i
0.0759		=	i
So,
Interest rate	=	7.59%
Step-2:Interest for the first year of bonds life
Interest		=	Initial cost	*	Interest rate
		=	$ 215.00	*	7.59%
		=	$    16.33