The English Tea Company issues 8-year, zero coupon, $1000 par value bonds; these bonds pay no...

 

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The English Tea Company issues 8-year, zero coupon, $1000 par value bonds; these bonds pay no interest but can be redeemed for par value at maturity. To price these bonds competitively with bonds of similar risk, ETC determines that a yield of 7% should be offered. Calculate the value of the bonds now (with 8 years remaining until maturity) and for each year until maturity in 1-year increments (assuming no change in the required rate of return), then graph your results. Explain the behavior of the bond's value over time. The English Tea Company issues 8-year, zero coupon, $1000 par value bonds; these bonds pay no interest but can be redeemed for par value at maturity. To price these bonds competitively with bonds of similar risk, ETC determines that a yield of 7% should be offered. Calculate the value of the bonds now (with 8 years remaining until maturity) and for each year until maturity in 1-year increments (assuming no change in the required rate of return), then graph your results. Explain the behavior of the bond's value over time.

Answer rating: 100% (QA)

Pricing an 8year zerocoupon bond with a 7 yield The value of a zerocoupon bond is calculated using t... View the full answer