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26 April, 20:24

An investor purchases a zero coupon bond with 18 years to maturity at a price of $407.24. The bond has a par value of $1,000. What is the implicit interest for the first year?

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  1. 26 April, 20:52
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    Implicit interest for the 1st year = (Redemption value of bond - Purchase price of bond) / Bond life or maturity period

    = ($ 1,000 - $ 407.24) / 18

    = $ 592.76 / 18

    = $ 32.931 = $ 33 (approx.)

    Explanation:

    Refer to the answer.

    Note - Redemption of zero coupon bond is always at par.
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