Question

A 5-year zero-coupon bond was issued with a $1,000 par value to yield 8%. what is the approximate market value of the bond? $597 $681 $275 $482

Answer 1

For this you need to determine the Net Present Value of the bond. The formula is the face value of the bond ($1,000) divided by (1 + the yield (8%) )^time to maturity (5). 1000/(1.08)^5 = $681 Therefore $681 is the correct answer