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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