Subject: Business    / Finance    

Question

18)

A 20-year, $1,000 par value zero-coupon rate bond is to be issued to yield 11 percent. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.

a.    

What should be the initial price of the bond? (Assume annual compounding. Do not round intermediate calculations and round your answer to 2 decimal places.)

Bond price    $

b.    

If immediately upon issue, interest rates dropped to 9 percent, what would be the value of the zero-coupon rate bond? (Assume annual compounding. Do not round intermediate calculations and round your answer to 2 decimal places.)

Bond price    $

c.    

If immediately upon issue, interest rates increased to 13 percent, what would be the value of the zero-coupon rate bond? (Assume annual compounding. Do not round intermediate calculations and round your answer to 2 decimal places.)

Bond price    $