A zero-coupon bond can be redeemed in 20 years for $10,000. How much should you be willing

Question:

A zero-coupon bond can be redeemed in 20 years for $10,000. How much should you be willing to pay for it now if you want a return of:

(a) 10% compounded monthly?

(b) 10% compounded continuously?

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.

Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...

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