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Ryyrel

Business Finance

Description

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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Explanation & Answer

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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

x= 4065.05/1000

x= 4.06%

and 4.06% of 213.95 is

A= [213.95/100]*4.06

A= 8.68 $   implicit interest in the first year of the bonds life

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Anonymous
Awesome! Perfect study aid.

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