A zero coupon bond with a face value of 27,000 matures in 14 years. What should the bond be sold for now if its rate of return is to be 2.965% compounded annually?

Solution

A zero coupon bond with a face value of 27, 000 matures in 14 years. What should the bond be sold for now if its rate of return is to be 2.965% compounded annually?

Solution

Principal : 17935.32

Solution steps

Translate the problem into an equation:

27000 = P (1 + \frac{0.02965}{1})^{1 \cdot 14}

Solve for

P, 27000 = P (1 + \frac{0.02965}{1})^{1 \cdot 14} : P = 17935.32

Principal : 17935.32

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