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

question 55

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) $692.04
• B) $696.57
• C) $962.50
• D) $1,000.00

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Definitions:

Interest Payments

The amount paid by a borrower to a lender over a period of time for the use of borrowed money, typically expressed as an annual percentage rate.

Earnings Decrease

This term refers to a reduction in a company’s net income or earnings per share (EPS) in comparison to a previous period, indicating a decline in profitability.

Industry Averages

Statistical measures that represent the average or typical performance within a particular industry or sector.

Common-Sized Financial Statements

Financial reports where all line items are presented as a percentage of a significant total, facilitating comparison across different periods or companies.