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# Zero coupon bond

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A 15 year, \$1,000 par value zero-coupon rate bond is to be issued to yield 10%.

a. What should be the initial price of the bond? (Take the present value of \$1,000 to be received after 15 years at 10 %, using Appendix B at the back of the text.)
b. If immediately upon issue, interest rates dropped to 8 %, what would be the value of the zero-coupon rate bond?
c. If immediately upon issue, interest rates increased to 12 %, what would be the value of the zero-coupon rate bond?

#### Solution Preview

A 15 year, \$1,000 par value zero-coupon rate bond is to be issued to yield 10 %.

a. What should be the initial price of the bond? (Take the present value of \$1,000 to be received after 15 years at 10 %, using Appendix B at the back of the text.)
b. If immediately upon issue, interest ...

#### Solution Summary

This solution is comprised of a detailed explanation to answer what should be the initial price of the bond.

\$2.19