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Why should the interest rate be divided by 2 and the time should be multiplied by 2 for the zero-coupon bond? Can I just do
Why should the interest rate be divided by 2 and the time should be multiplied by 2 for the zero-coupon bond?
Can I just do it in annual fashion? (no coupon payment anyway.) Why? Thanks for the help.
(No problem finding the price with the formula though.)
Consider the price of a zero-coupon bond (P) that matures 15 years from now, if the maturity value is $1,000 and the required yield is 9.4%. For zero-coupon bonds, the investor realizes interest as the difference between the maturity value and the purchase price. The equation is: M, P= (1+r)" P= price (in dollars) M= maturity value r=periodic interest rate (required annual yield divided by 2) n=number of periods (number of years times 2)1222Step by Step Solution
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