4. How many years are the following zero coupon bonds, if they all yield 4% and have a face value of $1000 Price Maturity $700.00 9.09 Price $880.00 Maturity 3.26 Price Maturity $900.00 2.69 Price Maturity $952.16 1.25

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
icon
Related questions
Question
### Zero Coupon Bonds Maturity Calculation

In this section, we explore how to determine the maturity period of zero coupon bonds given their prices, assuming they all yield 4% and have a face value of $1,000. Below is a breakdown of the prices and their corresponding maturities:

1. **Price: $700.00**  
   - **Maturity: 9.09 years**

2. **Price: $880.00**  
   - **Maturity: 3.26 years**

3. **Price: $900.00**  
   - **Maturity: 2.69 years**

4. **Price: $952.16**  
   - **Maturity: 1.25 years**

These values illustrate how the price of a bond relative to its face value can help determine the time to maturity when the yield is constant. A lower bond price typically corresponds to a longer time until maturity. In this case, as the price of the bond increases, the required time to reach maturity decreases at the given yield rate.
Transcribed Image Text:### Zero Coupon Bonds Maturity Calculation In this section, we explore how to determine the maturity period of zero coupon bonds given their prices, assuming they all yield 4% and have a face value of $1,000. Below is a breakdown of the prices and their corresponding maturities: 1. **Price: $700.00** - **Maturity: 9.09 years** 2. **Price: $880.00** - **Maturity: 3.26 years** 3. **Price: $900.00** - **Maturity: 2.69 years** 4. **Price: $952.16** - **Maturity: 1.25 years** These values illustrate how the price of a bond relative to its face value can help determine the time to maturity when the yield is constant. A lower bond price typically corresponds to a longer time until maturity. In this case, as the price of the bond increases, the required time to reach maturity decreases at the given yield rate.
Expert Solution
steps

Step by step

Solved in 3 steps with 2 images

Blurred answer
Knowledge Booster
Rate Of Return
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education