# Question

A 30-year, $1,000 par value zero-coupon bond provides a yield of 11 percent.

a. Compute the current price of the zero-coupon bond. (Hint: Simply take the present value of the ending $1,000 payment).

b. What is the duration of the bond?

c. Does the bond have a longer or shorter duration than a 50-year, 8 percent coupon rate bond, where the duration on the latter bond is based on a 12 percent market rate of interest (consult Table 18–6 ).

d. Assume you were going to put the zero-coupon bond(s) from part a in a nontaxable individual retirement account. If you wish to have $30,000 after 30 years, how much would you need to invest today?

e. If a $1,000 par value zero-coupon rate bond had a 40-year maturity and provided a yield of 13 percent, what would be the current price of the zero-coupon bond?

a. Compute the current price of the zero-coupon bond. (Hint: Simply take the present value of the ending $1,000 payment).

b. What is the duration of the bond?

c. Does the bond have a longer or shorter duration than a 50-year, 8 percent coupon rate bond, where the duration on the latter bond is based on a 12 percent market rate of interest (consult Table 18–6 ).

d. Assume you were going to put the zero-coupon bond(s) from part a in a nontaxable individual retirement account. If you wish to have $30,000 after 30 years, how much would you need to invest today?

e. If a $1,000 par value zero-coupon rate bond had a 40-year maturity and provided a yield of 13 percent, what would be the current price of the zero-coupon bond?

## Answer to relevant Questions

Assume you buy a 20-year, $1,000 par value zero-coupon bond that provides a 10 percent yield. Almost immediately after you buy the bond, yields go down to 8 percent. a. What will be your gain on the investment? b. What will ...In discussing return potential in foreign markets, indicate why a number of foreign countries may have higher return possibilities than the United States. Assume you invest in the German equity market and have a 20 percent return (quoted in euros). a. If during this period the euro appreciated by 10 percent against the dollar, what would be your actual return translated into ...What is an adjustable rate mortgage? Describe how the returns of a venture capital fund are distributed between the general partners and the limited partners (investors).Post your question

0