Zero Coupon Bond

A zero coupon bond is a bond that is sold now at a discount and will pay its face value when it matures. No interest payments are made.

Use this information to answer questions 10-12 below.

Question 1

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A zero coupon bond with a face value of $11,000 matures in 12 years. What should the bond be sold for now if its rate of return is to be 4.661% compounded annually?

$ _________ . Round to the nearest dollar.

Question 2

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You buy a zero coupon bond with a face value of $17,000 that matures in 24 years for $9,000. What is your annual compound rate of return?

_________ %. Round to the nearest thousandths of a percent (3 decimal places).

Question 12

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You have $10,000 to invest, and you do not need to collect on your investment for 10 years.

• Option 1: You can buy a zero coupon bond with a face value of $20,000 that matures in 10 years.
• Option 2: You can deposit the money into a CD account that matures in 10 years with an annual percentage yield (APR) of 5.659%.

Which option should you choose? Enter 1 or 2.