Calculate the Price of a Zero-Coupon Bond That Matures in Five

question 63

Multiple Choice

Calculate the price of a zero-coupon bond that matures in five years if the market interest rate is 7.50 percent. (Assume semiannual compounding and $1,000 par value.)

• A)$692.02
• B)$696.57
• C)$962.50
• D)$1,000.00

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Definitions:

Inverse Demand

A representation of demand that expresses price as a function of quantity demanded, contrary to the typical demand function.

Inverse Supply

A concept in economics that describes a situation in which the supply of a good decreases as its price decreases, opposite to the normal supply behavior.

Tax

Mandatory financial charge or some other type of levy imposed upon a taxpayer by a governmental organization in order to fund government spending and various public expenditures.

Excess Demand

A situation where the quantity demanded of a good exceeds the quantity supplied at a particular price, leading to a shortage.