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Problem refer to zero coupon bonds. A zero coupon bond is a bond that is sold now

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Problem refer to zero coupon bonds. A zero coupon bond is a bond that is sold now at a discount and will pay its face value at some time in the future when it matures—no interest payments are made.

A zero coupon bond with a face value of $30,000 matures in 15 years. What should the bond be sold for now if its rate of return is to be 4.348% compounded annually?

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Answers The present value of the bond can be calculated using the formula P...View the full answer


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Bond valuation is the process of determining the worth of a bond. It is based on the present value of the bond\'s future cash flows, which include coupon payments and the return of the bond\'s face value (or \"principal\") at maturity. The discount rate used in the calculation is directly tied to prevailing interest rates, and a rise in interest rates will decrease the present value of the bond and thus lower its price. Conversely, a fall in interest rates will increase the present value of the bond and raise its price. Interest rates serve as a benchmark for determining the value of a bond, as they determine the discount rate used in the bond valuation calculation. The most commonly used measure of interest rates is the yield to maturity (YTM), which represents the internal rate of return of an investment in a bond if the investor holds the bond until maturity and receives all scheduled payments. Yield to maturity is a function of the coupon rate, the current market price of the bond, the face value of the bond, and the number of years remaining until maturity. By comparing the yield to maturity of a bond to prevailing market interest rates, an investor can assess the relative value of the bond.

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