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Zero coupon bonds: Diane Carter is interested in buying a five-year zero coupon bond with a face value of $1,000. She understands that the market interest rate for similar investments is 9 percent. Assume annual coupon payments. What is the current value of this bond?

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kaympoey08

Answer:

The answer is $649.93

Explanation:

price = M / (1 + i)^n

M= 1000

i= 0.09

n= 5

Therefore value of the zero coupon bond is 1000/ 1.09^5 = $649.93

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