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You find a zero coupon bond with a par value of $15,000 and 20 years to maturity. If the yield to maturity on this bond is 5.8 percent, what is the dollar price of the bond

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tutordamola

Answer:

The answer is $4,857.11

Explanation:

Zero coupon bond makes no periodic payment of interest. The interest is paid at maturity with the principal.

N(Number of periods) = 20 years

I/Y(Yield to maturity) = 5.8 percent

PV(present value or market price) = ?

PMT( coupon payment) = 0

FV( Future value or par value) = $15,000.

We are using a Financial calculator for this.

N= 20; I/Y = 5.8; PMT = 0; FV= $15,000; CPT PV= -4,857.11

Therefore, the dollar price of the bond is $4,857.11

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