Calculate the price of a zero coupon bond that matures in 12 years if the market

Question

Calculate the price of a zero coupon bond that matures in 12 years if the market interest rate is 6.20 percent. (Do not round Intermediate calculations and round your final answer to 2 decimal places.) Zero coupon bond price $ What's the taxable equivalent yield on a municipal bond with a yield to maturity of 4.2 percent for an Investor in the 33 percent tax bracket? (Round your answer to 2 decimal places.) Compute the price of a 7.0 percent coupon bond with fifteen years left to maturity and a market interest rate of 8.0 percent. (Assume interest payments are semiannual.) (Do not round intermediate calculations and round your final answer to 2 decimal places.) is this a discount or premium bond? Premium bond Discount bond

Explanation / Answer

1. Zero coupon bond price = 1,000 / (1+0.062)^12 = $485.85

2. Taxable equivalent yield on a municipal bond = 4.2%/(1-0.33) = 6.27%

3. Bond Price = 35 * PVAF(4%, 30YEARS) + 1,000 * PVF(4%, 30YEARS) = $913.54
This is a Discount Bond.

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