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Chapter 5: Q. 64 (page 326)

Zero-Coupon Bonds A child鈥檚 grandparents are considering buying a $40,000 face-value, zero-coupon bond at birth so that she will have money for her college education 17 years later. If they want a rate of return of 8% compounded annually, what should they pay for the bond?

Short Answer

Expert verified

The child grandparents need to pay $10,810.76 for the bond to get a value of $40,000 in 17 years.

Step by step solution

01

Step 1. Given Information

A child鈥檚 grandparents are considering buying a $40,000 face-value, zero-coupon bond at birth so that she will have money for her college education 17 years later.

A=$40,000t=17r=8%=0.08n=1P=?

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