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You purchased a zero-coupon bond one year ago for $275.83. The market interest rate is now 9

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You purchased a zero-coupon bond one year ago for $275.83. The market interest rate is now 9 percent. If the bond had 15 years to maturity when you originally purchased it, what was your total return for the past year?

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...
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To find the return on the zero coupon bond we first need to find the price of the bond ...View the full answer


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Related Book For  book-img-for-question
Essentials Of Corporate Finance

Essentials Of Corporate Finance

ISBN: 9780073382463

7th Edition

Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan

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Related Video

Bond valuation is the process of determining the worth of a bond. It is based on the present value of the bond\'s future cash flows, which include coupon payments and the return of the bond\'s face value (or \"principal\") at maturity. The discount rate used in the calculation is directly tied to prevailing interest rates, and a rise in interest rates will decrease the present value of the bond and thus lower its price. Conversely, a fall in interest rates will increase the present value of the bond and raise its price. Interest rates serve as a benchmark for determining the value of a bond, as they determine the discount rate used in the bond valuation calculation. The most commonly used measure of interest rates is the yield to maturity (YTM), which represents the internal rate of return of an investment in a bond if the investor holds the bond until maturity and receives all scheduled payments. Yield to maturity is a function of the coupon rate, the current market price of the bond, the face value of the bond, and the number of years remaining until maturity. By comparing the yield to maturity of a bond to prevailing market interest rates, an investor can assess the relative value of the bond.

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