Suppose you purchase a zero coupon bond with a face
value of $1,000, maturing in 19 years, for $213.95. Zero coupons pays the
investor the face value of the maturity date. What is the implicit interest in
the first year of the bonds life?
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we have to find the rate that makes 213.95 to grow to 1000 in 19 years
1000 = [213.95*19]/x
and 4.06% of 213.95 is
A= 8.68 $ implicit interest in the first year of the bonds life
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