Question

A pure discount (or zero-coupon) government bond has a face value of $20,000 and a yield of 4.953%. If the current price of the bond is $14,200, what is the maturity of the bond in years? Recall that the compounding interval for bonds is 6 months.

Answer 1

Explanation:

Calculating Zero-Coupon Bond Price

Add 1 to the required rate of return as a decimal. Raise the result to the power of the number of years until the bond matures. 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.