A child’s grandparents are considering buying a $40,000 face-value, zero-coupon bond at birth so that she will have enough money for her college education 17 years later. If they want a rate of return of 8% compounded annually, what should they pay for the bond?

Problem involves zero-coupon bonds. A zero-coupon bond is a bond that is sold now at a discount and will pay its face value at the time when it matures; no interest payments are made.