Question

Determine the face value of a zero coupon bond whose maturity is 3 years, its IRR is 4% and has a present value of $8,420

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59 Answers

1. The formula for the present value (PV) of a zero-coupon bond is given by:

PV = \frac{FV}{(1 + r)^n}

where:

- \(PV\) is the present value

- \(FV\) is the face value

- \(r\) is the interest rate (IRR)

- \(n\) is the number of years to maturity

2. Rearrange the formula to solve for the face value \(FV\):

FV = PV \times (1 + r)^n

3. Substitute the given values into the formula:

FV = 8,420 \times (1 + 0.04)^3

4. Perform the calculation:

FV = 8,420 \times (1.04)^3

FV = 8,420 \times 1.124864

FV \approx 9478.40

Answer:FV \approx 9478.40

where:

- \(PV\) is the present value

- \(FV\) is the face value

- \(r\) is the interest rate (IRR)

- \(n\) is the number of years to maturity

2. Rearrange the formula to solve for the face value \(FV\):

3. Substitute the given values into the formula:

4. Perform the calculation:

Answer:

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