Valuing zero-coupon bond, Financial Management

As we know, zero-coupon bonds are issued without any periodic coupon payments. The investor gets the interest and the principal on a maturity date. The interest is the difference between the purchase price and the maturity value. The price of this bond is computed as follows:

         V0  = M/(1 + r)n                                                                      .... Eq. (4) 

Where,

         V0      =       Value of the bond

         M       =       Maturity value

         r         =       Expected rate of return

         n         =       Period of the bond.

Posted Date: 9/10/2012 5:54:59 AM | Location : United States







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