contestada

A client has expressed interest in a ten-year zero coupon bonds with a face value of $1,000. His opportunity cost is 7 percent. Assuming annual compounding, what would be the current market price of these bonds? Round to the nearest dollar.

Respuesta :

Answer:

$508

Explanation:

Data provided in the question:

Face value of the bonds = $1,000

Opportunity cost, r = 7% = 0.07

Time period of the coupon, n = 10 years

Now,

The Current price of these bonds from annual compounding

= [tex]\frac{\textup{Face value}}{(1+r)^n}[/tex]

or

= [tex]\frac{\$\textup{1,000}}{(1+0.07)^{10}}[/tex]

or

= $508.35

Hence,

the current market price of these bonds to nearest dollar is  $508