Compute the value of the following bonds assuming a 3% discount rate (required rate of return):

A zero-coupon bond that pays $1,000 in five years

A bond that pays $1,000 in five years, with five annual coupon payments of $20 each

What is the coupon rate if coupon payments are $20 per year? At what discount rate would the value of the bond be "at par" (e.g., be worth $1,000?). Explain your reasoning.

Answer rating: 100% (QA)

SOLUTION To compute the value of the bonds we can use the present value formula PV FV 1 rn where PV is the present value of the bond FV is the future ... View the full answer