A 12-year, $1,000 face value zero-coupon bond is priced to yield a return of 7.00 percent on a semi-annual basis. What is the price of the bond, and how much interest will the bond pay over its life, respectively? (Select the choice that is closest to the correct answer.)
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A. B. C. D.D
Using the equation:Pricezerocoupon= Face Value * [ 1 / ( 1 + i/n)n*2]
Here,Pricezerocoupon= 1000 * [ 1 / (1+ 0.070/2)12*2] = 1000 * 0.43796 = 437.95, or approximately438.So, interest = Face Value "" Price = 1000 "" 438 =562.
Using thecalculator:N = (12*2) =24, I/Y = 7.00 / 2 =3.50, FV = 1000, PMT = 0. PV = -437.95, or approximately $438