I'm studying for an upcoming test in my Finance class. I think I may
have partially solved this problem, but I'm still lost:
Bond Pricing. Fill in the table below for the following
zero-coupon bonds. The face value of each bond is
$1,000.
Price Maturity Yield to Maturity
$300 30 -
$300 - 8
- 10 10
I have found the formula for determining yield on a zero-coupon bond:
(Future value divided by Purchase Price)to the power of 1 over the
number of years to maturity-1. In the first row, I got $4.09% but is
this the yield to maturity?
For the second row, I have no idea how to figure out the number of
years to maturity based on the info given.
And for the last row, I found a formula to determine zero-coupon bond
price, but again, I'm not sure if I'm plugging in the right numbers
into the formula.
The number of periods should be 20, and since the yield is 10%, this
should be divided by 2, which is 5.
The formula I have says that you divide the face value of the coupon
by 1 + I to the power of number of years of maturity. 1000 divided by
2.653= $376.93. Is this correct? |