Question: A 5-year, $1,000 par value, zero-coupon rate bond is to be issued to yield 10%. a. What should be the initial price of the bond?

A 5-year, $1,000 par value, zero-coupon rate bond is to be issued to yield 10%.

a. What should be the initial price of the bond?

b. If immediately upon issue, interest rates dropped to 8%, what would be the value of the zero-coupon rate bond?

c. If immediately upon issue, interest rates increased to 12%, what would be the value of the zero-coupon rate bond?


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