Explore BrainMass

Explore BrainMass

    Zero coupon bond

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    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?

    © BrainMass Inc. brainmass.com June 3, 2020, 9:52 pm ad1c9bdddf
    https://brainmass.com/business/bond-valuation/zero-coupon-bond-203215

    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

    ADVERTISEMENT