Question

# Assume the​ zero-coupon yields on​ default-free securities are as summarized in the following​ table: Maturity 1...

Assume the​ zero-coupon yields on​ default-free securities are as summarized in the following​ table:

 Maturity 1 year 2 years 3 years 4 years 5 years ​Zero-Coupon Yields 3.003.00​% 3.503.50​% 3.803.80​% 4.204.20​% 4.304.30​%

What is the price of a​ five-year, zero-coupon​ default-free security with a face value of \$1,000. Round to the nearest cent.

Face value (f) = 1000. Rate/ yield = 4.304. Time to maturity = 5 years. formula for calculating zero coupon default free security is. = F / (1+r)t. = 1000/ (1+ 4.304%)5 = \$810 zero coupon bond a bond that is issued at Deep discount to its face value but page no interest is zero coupon bond is a death security that doesn't pay interest but is treated at a deep discount rendering profit at maturity when the bond is redeemed for its full value hence there is a difference between zero coupon Bond and a regular Bond

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