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?


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  • CreatedSeptember 21, 2015
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