Homework Question Need Help With

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 20 years, for $212.00. 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 8th, 2015

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

zero coupon bond yield=(F/PV)^1/n  -1

F=face value

PV=present value

n=periods

=(1000/212)^1/20   -1

=0.08065

 No explicit interest is paid on the zero-coupon bond (no coupons)

Please let me know if you need any clarification. I'm always happy to answer your questions.
Jul 8th, 2015

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