A 25-year, $1,000 par value zero-coupon rate bond is to be issued to yield 8 percent. Use
Question:
A 25-year, $1,000 par value zero-coupon rate bond is to be issued to yield 8 percent. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.
a. What should be the initial price of the bond? (Assume annual compounding. Do not round intermediate calculations and round your answer to 2 decimal places.)
b. If immediately upon the issue, interest rates dropped to 7 percent, what would be the value of the zero-coupon rate bond? (Assume annual compounding. Do not round intermediate calculations and round your answer to 2 decimal places.)
c. If immediately upon the issue, interest rates increased to 10 percent, what would be the value of the zero-coupon rate bond? (Assume annual compounding. Do not round intermediate calculations and round your answer to 2 decimal places.)
Foundations of Financial Management
ISBN: 978-1259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta