You find a zero coupon bond with a par value of $10,000 and 22 years to maturity. The yield to maturity on this bond is 4.4 percent. Assume semiannual compounding periods. What is the price of the bond?

The price of bond is $3838.49

Explanation:

The price of bond should be calculated on semiannual compounding periods which means that the rate is divided by 2 and years should be multiplied by 2

In mathematically,

Semi annual rate = Rate : 2

= 4.4 : 2

= 2.2%

And, the semi annual year = total number of years * 2

= 22 * 2

=44

The formula to compute the price of bond is shown below:

= Coupon payment : (1 + rate) ^ number of years

= $10,000 : (1 + 0.022) ^ 44

= ($10,000 : 1.022) ^ 44

= $3838.49

Hence, the price of bond is $3838.49