To fill in the table below for the following zero-coupon bonds, all of which have par values of $1000 PRICE MATURITY(YEARS) YIELD TO MATURITY $400 20 (a) $500 20 (b) $500 10 (c) (d) 10 10% (e) 10 8% $400 (f) 8% Introduction: A bond is a security that creates an obligation on the issuer to make specified payments to the holder for a given period of time. The face value of the bond is the amount that the holder will receive on maturity along with the coupon rate which is also known as the interest rate of the bond. A zero-coupon bond is a bond where at the time of maturity the face value is repaid. Yield to maturity is termed as the discount rate which makes the present payments from the bond and its price as equal. In simple terms, it is the average rate of return a holder can expect from that bond.

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Chapter 10, Problem 20PS

Summary Introduction

To Discuss:

To fill in the table below for the following zero-coupon bonds, all of which have par values of $1000

PRICE MATURITY(YEARS) YIELD TO MATURITY

$400
20
(a)

$500
20
(b)

$500
10
(c)

(d)
10
10%

(e)
10
8%

$400
(f)
8%

Introduction:

A bond is a security that creates an obligation on the issuer to make specified payments to the holder for a given period of time. The face value of the bond is the amount that the holder will receive on maturity along with the coupon rate which is also known as the interest rate of the bond.

A zero-coupon bond is a bond where at the time of maturity the face value is repaid.

Yield to maturity is termed as the discount rate which makes the present payments from the bond and its price as equal. In simple terms, it is the average rate of return a holder can expect from that bond.

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