A 30-year, $1,000 par value zero-coupon bond provides a yield of 11 percent. a. Compute the current

Question:

A 30-year, $1,000 zero-coupon bond provides a yield of 11 percent.
a. Compute the current price of the zero-coupon bond. (Hint: Simply take the present value of the ending $1,000 payment).
b. What is the duration of the bond?
c. Does the bond have a longer or shorter duration than a 50-year, 8 percent rate bond, where the duration on the latter bond is based on a 12 percent market rate of interest (consult Table 18–6 ).
d. Assume you were going to put the zero-coupon bond(s) from part a in a nontaxable individual retirement account. If you wish to have $30,000 after 30 years, how much would you need to invest today?
e. If a $1,000 zero-coupon rate bond had a 40-year and provided a yield of 13 percent, what would be the current price of the zero-coupon bond?
Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a... Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest... Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...