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A zero coupon bond with a face value of $1,000 is issued with an initial price of $500. The bond matures in 8 years.
A zero coupon bond with a face value of $1,000 is issued with an initial price of $500. The bond matures in 8 years. What is the implicit annual interest rate on the bond? NOTE: Assume all bonds (unless otherwise noted) have a $1,000 face value, which is a promise to pay $1,000 at maturity (when the loan comes due). When bonds pay interest over the life of the loan, we refer to these interest payments as coupons. A zero coupon is a pure discount loan, so it pays no coupons. That is, it is a bond where the company agrees to borrow money today in exchange for a single payment ($1,000) at maturity. U.S. Treasury Bills mentioned in the text book are an example. Multiple Choice O 11.05% 10.05% 805% O 7.05% 9.05%
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