A 17-year, $1,000 par value zero-coupon rate bond is to be issued to yield 7 percent. a.

Question:

A 17-year, $1,000 zero-coupon rate bond is to be issued to yield 7 percent.
a. What should be the initial price of the bond? (Take the present value of $1,000 for 17 years at 7 percent, using Appendix B.)
b. If immediately upon issue, interest rates dropped to 6 percent, what would be the value of the zero-coupon rate bond?
c. If immediately upon issue, interest rates increased to 9 percent, what would be the value of the zero-coupon rate bond?

Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...