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?
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%
This one is incorrect it states
The implicit interest = interest rate *face value = 0.072368*1000= 72.37
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