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    Question about Zero-Coupon Bond

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    Please help answer the following problems. Provide step by step calculations.

    A 20-year, $1,000 par value zero-coupon rate bond is to be issued to yield 11 percent

    a. What should be the initial price of the bond? (Take the present value of 1000 for 20 years, using Appendix B at the back of the text.)

    b. If immediately upon issue, interest rates dropped to 9 percent, what would be the value of the zero-coupon rate bond?

    c. If immediately upon issue, interest rates increased to 13 percent, what would be the value of the zero-coupon rate bond?

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    Solution Preview

    See attached file.

    Zero-coupon rate bond
    A 20-year, $1,000 par value zero-coupon rate bond is to be issued to yield 11 percent

    a. What should be the initial price of the ...

    Solution Summary

    This solution is comprised of a detailed explanation to answer what should be the price and how would value change. It helps find the initial price of bond and helps calculate the value of zero-compound rate bonds based on changing interest rates. Step by step calculations are provided for each problem.

    $2.19

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