With a zero-coupon bond, the buyer receives only the face value of the bond at maturitythe bond

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With a zero-coupon bond, the buyer receives only the face value of the bond at maturity—the bond pays no coupons. Suppose that for a price of $675, you buy a 10-year, zero-coupon with a $1,000 face value.
a.
What interest rate will you receive over the life of the bond if you hold the bond to maturity?
b. Now suppose that interest rates on equivalent bonds have risen to 10% after one year. If you decide to sell the bond, what price can you sell it for?
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...
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Macroeconomics

ISBN: 9780132109994

1st Edition

Authors: Glenn Hubbard, Anthony Patrick O'Brien, Matthew P Rafferty

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