1000 par value zerocoupon bonds ignore liquidity premiums Bo

1,000 par value zero-coupon bonds (ignore liquidity premiums) Bond Years to Maturity ield to Mlatu rit 5) 6 00% 7.50% 7.99 8 49 C\' 10. 70% -(to the nearest dollar) C) $821 One year from! now bond C should sell for. A) $857 B) $842 D) $835

Solution

Price of Bond C is calculated as

PV= FV/(1+r)^n since there are no coupons

Hence PV after 1 year = 1000/ 1.0799^2

= $857.50

ANSWER = A) $ 857