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 9% with annual compounding how much would you pay today for a zero-coupon bond with a face value of $1,700 that matures in 4 years?

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DeniceSandidge DeniceSandidge · Answer 1 · 2019-08-14T14:00:08+02:00

Answer:

so pay today is $1186.05

Explanation:

Given data

face value = $1,700

rate = 9%

time = 4 year

to find out

how much would you pay today

solution

we know present value formula that is

present value = face value × [tex]e^{-rt}[/tex]

put all value here rt = 0.09(4) = 0.36

present value = face value × [tex]e^{-rt}[/tex]

present value = 1700 × [tex]e^{-0.36}[/tex]

present value = 1186.049

so pay today is $1186.05

nizhalspark nizhalspark · Answer 2 · 2021-08-09T16:13:37+02:00

Answer:

We would pay $1186.05 today for a zero-coupon bond with a face value of $1,700 that matures in 4 years.

Explanation:

To calculate present value use the formula;

present value = face value × [tex]=face\ value\times e^{-rt}[/tex]

[tex]rt = 0.09(4) = 0.36[/tex]

present value [tex]=1700\times e^{-0.36}[/tex]

present value[tex]= 1186.049[/tex]

And, the pay for today is $1186.05

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