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Price of a zero coupon bond formula


price of a zero coupon bond formula

to pay for this bond if the discount rate. Zero coupon bond price 816.30 (rounded to 816). Zero Coupon Bond Pricing Example, suppose for example, the business issued 3 year, zero coupon bonds with a face value of 1,000. For example, consider a 1,000 zero coupon bond that has two years until maturity.

Calculating Zero-Coupon Bond Price, to figure the price you should pay for a zero-coupon bond, first divide your required rate of return by 100 to convert it to a decimal. In order for the bondholder to get a return on their investment when buying zero coupon bonds, the bond is issued at a discount to its face value (hence the reason why a zero coupon bond is sometimes referred to as a discount bond. For example, if a bond has a face value of 1,000, youll earn a higher rate of return if you can buy it for 900 instead of 920. Yield to maturity is a basic investing concept that is used to compare bonds of different coupons and time until maturity.

This makes the yield to maturity easier to calculate for zero coupon bonds, because there are no coupon payments to reinvest, making it equivalent to the normal rate of return on the bond. The longer the term the zero coupon bond is issued for the lower the bond price will. More must-clicks: More Articles You'll Love. Second, add 1.06 to get.06. If you'd rather not do the calculation by hand, some online calculators allow you to determine the bond price. Zero coupon bond price 751.31 (rounded to 751). Calculate Bonds, how to Calculate the Price of a Zero Coupon Bond. The bond is currently valued at 925 (the price it could be purchased at today).

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