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23 February, 15:00

A firm offers a 10-year, zero coupon bond with a face value of $1,000. What is the current market price if the yield to maturity is 7.6 percent, given semiannual compounding

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  1. 23 February, 15:06
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    Current market price is 474.30

    Explanation:

    The current price of the bond can be computed using the pv function in excel as stated thus:

    =-pv (rate, nper, pmt, fv)

    rate is semiannual yield to maturity which is 7.6%/2

    nper is the 10 years of bond tenure multiplied by 2

    pmt is the coupon payable which is zero

    fv is the face value of the bond which is $1000

    =-pv (7.6%/2,20,0,1000) = $ 474.30
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