Question: While most bonds pay a coupon (regularly scheduled interest payments), some bonds do not. These zero coupon bonds pay interest only when the bond matures.

While most bonds pay a coupon (regularly scheduled interest payments), some bonds do not. These zero coupon bonds pay interest only when the bond matures. Pricing these bonds is different, but easier, than pricing coupon bonds.

You want to purchase a zero coupon bond with a par value of $10,000 and 21 years to maturity. The annual yield to maturity on this bond is 4.3 percent with semi-annual compounding.

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