A childs grandparents are considering buying a $40,000 face-value, zero-coupon bond at birth so that she will

Question:

A child’s grandparents are considering buying a $40,000 face-value, zero-coupon bond at birth so that she will have enough money for her college education 17 years later. If they want a rate of return of 8% compounded annually, what should they pay for the bond?

Problem involves zero-coupon bonds. A zero-coupon bond is a bond that is sold now at a discount and will pay its face value at the time when it matures; no interest payments are made.

Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...

Fantastic news! We've Found the answer you've been seeking!