Homework Question Finance

Business & Finance
Tutor: None Selected Time limit: 1 Day

Suppose you purchase a zero coupon bond with a face value of $1,000, maturing in 22 years, for $215.00. 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?

Jul 7th, 2015

Thank you for the opportunity to help you with your question!

let the interest rate is i 

Price = PV = 215.00 = 1000/(1+i)^22

(1+i)^22 = 1000/215 =  4.6511628

(1+i) = 4.6511628^(1/22) = 1.072368

i = 7.2368%


Please let me know if you need any clarification. I'm always happy to answer your questions.
Jul 7th, 2015

This one is incorrect it states

Jul 7th, 2015

The implicit interest = interest rate *face value = 0.072368*1000= 72.37

Jul 8th, 2015

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