An attorney has recently contacted you for help in determining the value of one of her client’s portfolios of securities. a) 20 zero coupon bonds with a $1,000 face value and 7 years to maturity. The YTM on these bonds is 7.6% (assume annual compounding here). What is the total value of these 20 zero coupon bonds?
An attorney has recently contacted you for help in determining the value of one of her client’s portfolios of securities. a) 20 zero coupon bonds with a $1,000 face value and 7 years to maturity. The YTM on these bonds is 7.6% (assume annual compounding here). What is the total value of these 20 zero coupon bonds?
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
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An attorney has recently contacted you for help in determining the value of one of her client’s portfolios of securities. a) 20 zero coupon bonds with a $1,000 face value and 7 years to maturity. The YTM on these bonds is 7.6% (assume annual compounding here). What is the total value of these 20 zero coupon bonds?
Expert Solution
Step 1: Calculating the value of 1 zero coupon bond
Given:
Face value =$1000
Time to maturity =7 years
Zero coupon bond
YTM = 7.6% compounded annually
So, Value of zero coupon bond = Face Value/(1+ YTM)^time
Applying the formula, 1000/(1+0.076)^7
Value of a zero coupon bond = $598.84
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