Asked by Diana Gasparyan on Jul 08, 2024
Verified
Today, you want to sell a zero-coupon bond you currently own. The bond matures in 9 years. How much will you receive for your bond if the market yield to maturity is currently 8.88%? Ignore any accrued interest.
A) $465.02
B) $468.10
C) $496.93
D) $676.39
E) $678.73
Market Yield
The annual income return as a percentage of the market price of an investment.
Zero-Coupon Bond
A type of bond that does not pay interest during its life but is sold at a deep discount, providing profit at maturity when it is redeemed for its face value.
Matures
The point at which a financial instrument, such as a bond or loan, reaches its due date and the principal is to be paid back.
- Calculate the price of bonds given different market conditions, including interest rates and time to maturity.
- Specify the elements of zero-coupon bonds and quantify their worth at numerous stages.
Verified Answer
NO
NNEDIMMA OKEY IWOBIJul 11, 2024
Final Answer :
A
Explanation :
The price of a zero-coupon bond can be calculated using the formula: Price = Maturity Value / (1 + yield to maturity)^n, where n is the number of years until maturity. Assuming a maturity value of $1,000 (as is standard for most bonds unless otherwise specified), the calculation would be: Price = $1,000 / (1 + 0.0888)^9 ≈ $465.02.
Learning Objectives
- Calculate the price of bonds given different market conditions, including interest rates and time to maturity.
- Specify the elements of zero-coupon bonds and quantify their worth at numerous stages.