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Baiman, Inc. issues $1,000,000 of zero-coupon bonds that mature in 10 years. Compute the bond issue price assuming that the bonds' market rate is:

a. 10% per year compounded semiannually.
Round your answers to the nearest dollar.

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Answer:

Zero-cupon bond= $376,889.48

Explanation:

Giving the following formula:

Face value= $1,000,000

Mature= 10*2= 20 semesters

Market rate= 0.1/2= 0.05

To calculate the price of the bond, we need to use the following formula:

Zero-cupon bond= [face value/(1+i)^n]

Zero-cupon bond= [1,000,000 / (1.05^20)]

Zero-cupon bond= $376,889.48

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