shows, the value at the 6 rate with 5 years remaining would.73. Thank you for helping to improve wisegeek! Note that depending on the number of suggestions we receive, this can take anywhere from a few hours to a few days. Yield on a Zero-Coupon Bond, given the current price (or issue price) of a zero-coupon bond (denoted. FV and years till maturity n, we can find out its annualized yield millcreek mall coupons to maturity using the following equation: Yield on Zero-Coupon example, on, Andrews invested 50,000 in 100 1,000 par value zero coupon bonds issued by Stonehenge Travel Plc. The value of zero coupon bond will continue to increase till it reach 100,000 at the time of its maturity. P its face value (also called maturity value). Fourth, divide the face value of the bond to calculate the price to pay for the zero-coupon bond to achieve your desired rate of return. The difference between 20,000 and 6,757 (or 13,243) represents the interest that compounds automatically until the bond matures. The following formula can be used to work out value of a zero-coupon bond.
Because they offer the entire payment at maturity, zero -coupon bonds tend to fluctuate in price much more than coupon bonds.
Zero Coupon Bond PV Calculator (Click Here or Scroll Down).
A zero coupon bond, sometimes referred to as a pure discount bond or simply discount bond, is a bond that does not pay.
As shown in the formula, the value, and/or original price, of the zero coupon bond is discounted to present value.
Zero -coupon bond differs from a traditional bond in the following ways.
Example of Zero Coupon Bond Formula. It is issued at a significant discount to its face value and its total return results from the difference between its face value and the issue price. The lower the price you pay for the zero-coupon bond, the higher your rate of return will. Value of Andrews total holding.17 55,317. These long-term maturity dates can allow an investor to plan for a long-range goal, such as paying for a childs college education. The 80 return, plus coupon payments received on the bond, is the investor's earnings or return for holding the bond.