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A zero coupon bond pays no annual coupon interest payments. When it matures at the end of 7.5 years it pays out $1,000. If investors wish to earn 2.35% per year on this bond investment, what is the current price of the bond? (Round to the nearest dollar.)

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Answer:

The current price of the bond is $840.12

Explanation:

The current price of this bond is the present value which have future value $1,000.

The discounting rate 2.35%;

The investment tenor is 7.5 years.

PV = FV/(1+discounting rate)^tenor =

1000/((1+3.35%)^7.5))= $840.12

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