A zero-coupon bond is a security that pays no interest, and is therefore bought at a substantial discount from its face value. If the interest rate is 2% with annual compounding how much would you pay today for a zero-coupon bond with a face value of $900 that matures in 5 years?
Answer
0
(0 stars)
0
Explanation:
Given data
face value = $900
rate = 2%
time = 5 year
to find out
how much would you pay today
solution
we know present value formula that is
present value = face value × e^-rt
put all value here rt = 0.02(5) = 0.10
present value = face value × e^-rt
present value = $900 × e^-0.10
present value = $814.35
so pay today is $ 814.35