The current zero-coupon yield curve for risk-free bonds is as follows: Maturity (years) 1 2 3 4 5 YTM 5.05 % 5.49 % 5.78 % 5.93 % 6.09 % What is the price per $ 100 face value of a four-year, zero-coupon, risk-free bond?

The answer is $79.42

Explanation:

Zero-coupon bonds does not make any periodic payments of interest. It pays both the interest and the face value at maturity.

N(Number of periods) = 4 years

I/Y(Yield to maturity) = 5.93 percent

PV(present value or market price) = ?

PMT( coupon payment) = 0

FV( Future value or par value) = $100

We are using a Financial calculator for this.

N= 4; I/Y = 5.93; PMT = 0; FV= $100; CPT PV= -79.42

Therefore, the market price of the bond is $79.42

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