CFA Level 1: Riskless Zero-Coupon Bond Value Calculation

Calculate Riskless Zero-Coupon Bond Value

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Question

Given that the risk-free rate of return is 6%, what is the value of a riskless zero-coupon bond with which the principal payment is $10,000 in 15 years?

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Explanations

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A. B. C. D. E. F.

B

The value of a zero-coupon bond is equal to the present value of its principal payment. The required rate of return on a riskless bond is the risk-free rate of return.

Usingappendix C in the book by Reilly & Brown, the present value of the bond is $10,000 x0.4173 = $4,173, or $10,000/(1.06^15).

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