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Calculate the price of a zero coupon bond that matures in 10 years if the market interest rate is 6 percent. (Assume semi-annual compounding and $1,000 par value.)

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Answer:

Price of coupon is $553.7098

Explanation:

Using the formula

Price = Face value/(1+rate)^periods

Face value= $1,000

Rate for semiannual= 6/2= 3

Periods for semiannual= 10*2= 20

Therefore

Price= 1,000/(1+0.03)^20

Price= 1,000/(1.03)^20

Price 1000/1.806= 553.7098

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