A 15 year, 1,000 par value, zero coupon rate bond is to be issued to yield 8 per

Question

A 15 year, 1,000 par value, zero coupon rate bond is to be issued to yield 8 percent.

a) What should be the initial price of the bond? ( Round PV Factor to 3 decimal places and final answer to the nerarest dollar amount.)

b) If immediately upon issue, interest rates dropped to 7 percent, what would be the value of the zero coupon rate bond? ( Round PV Factor to 3 decimal places and final answer to the nearest dollar amount.)

c) If immediately upon issue, interest rates incresed to 10 percent, what would be the value of the zero coupon rate bond> (Round PV Factor to 3 decimal places and final answer to the nearest dollar amount.)

Explanation / Answer

B. here initial value(value of zero coupon bond) = 1000/(1+0.07)^15 = $ 362.446 C. here initial value(value of zero coupon bond) = 1000/(1+0.1)^15 = $ 239.392

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