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    Zero Coupon Bond's worth at X%

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    A zero bond is a kind of bond issues by an American government that pays no interest at all, simply the capital sum at the end.

    a) If interest rates are 6% what is the value today of a "zero" bond paying $10,000, ten years from now?

    b) If interest rates suddenly halve to 3% a year, what is the same bond worth?

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    Solution Preview

    Unless otherwise indicated, the required yield of most zero-coupon bonds is based on a semi-annual coupon payment. This is because the interest on a zero-coupon bond is equal to the difference between the purchase price and maturity value, but we need a way to compare a zero-coupon ...

    Solution Summary

    Calculations showing today's value of a zero coupon bond at certain interest rates.