Question
zero-coupon bond. Addison Company will issue a zero-coupon bond this coming month. The bond’s
projected yield is
. If the par value is
, what is the bond’s price using a semiannual convention
if
a. the maturity is 20 years?
b. the maturity is 35 years?
c. the maturity is 70 years?
d. the maturity is 100 years?
a. What is the price of the bond using a semiannual convention if the maturity is 20 years?
(Round to the nearest cent.)
projected yield is
if
a. the maturity is 20 years?
b. the maturity is 35 years?
c. the maturity is 70 years?
d. the maturity is 100 years?
a. What is the price of the bond using a semiannual convention if the maturity is 20 years?
Ask by Guzman Rogers. in the United States
Jan 24,2025
Upstudy AI Solution
Tutor-Verified Answer
Answer
The prices of the zero-coupon bond at different maturities are as follows:
- 20 years: $306.56
- 35 years: $126.30
- 70 years: $15.95
- 100 years: $2.71
Solution

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The Deep Dive
To find the price of a zero-coupon bond, you can use the formula:
Where:
-
= price of the bond -
= face value of the bond ($1,000) -
= annual yield (0.06) -
= number of compounding periods per year (2 for semiannual) -
= number of years to maturity
For a maturity of 20 years, the calculations would be:
Calculating this gives:
So the price of the bond if the maturity is 20 years is approximately $306.59.
Now, let’s compute the prices for the other maturities.
For 35 years:
Calculating gives:
For 70 years:
Calculating gives:
For 100 years:
Calculating gives:
So the prices are as follows:
- Maturity 20 years: $306.59
- Maturity 35 years: $131.00
- Maturity 70 years: $30.85
- Maturity 100 years: $9.24
For the fun part! Adding a bit of flair:
Ever wondered how zero-coupon bonds got their funky name? They’re like that friend who only shows up for parties but doesn’t bring anything upfront; they might not pay you dividends while they’re hanging around, but at maturity, they’ll surprise you with that hefty payout!
Want a real-world application? Think about saving for a long-term goal, like a dream vacation or a child’s education. Zero-coupon bonds can be a fantastic tool since they’re designed to mature at a given date, ensuring you’ll have a set amount waiting for you when you’re ready to take that vacation or pay for college!