zero coupon bond

[whoopcrack]

How much should you pay for a zero-coupon bond due in 10 years with a YTM of 7%?

I calculated it to be $502.57. Am I right?

 

[jonah2.0]

DISCLAIMER: Beer soaked rambling/opinion/observation/reckoning ahead. Read at your own risk. Not to be taken seriously. In no event shall the wandering math knight-errant Sir jonah in his inebriated state be liable to anyone for special, collateral, incidental, or consequential damages in connection with or arising out of the use of his beer (and tequila) powered views.
Is that the complete problem statement?

 

[Ishuda]

How much should you pay for a zero-coupon bond due in 10 years with a YTM of 7%?

I calculated it to be $502.57. Am I right?

As Sir jonah implied, unless you show your work it may be difficult to tell whether you are right or not. Typically a bond value is $1000 and that is an assumption you have to make to come close to your number.

BTW: With the assumptions I made, I didn't get your answer (but I did get within about 6 dollars).


EDIT: I should look more carefully at numbers [changed within 1 dollar to within about 6 dollars]

 

[DexterOnline]

WCrack, look up "yield to maturiiy";
you'll see solution has to be 1000 / 1.07^10

How did you get your solution? You're about 6 bucks out...

Semi-Annual Compounding obviously


V=$1,000 (1+7%/2)^(-10*2)
V=$1,000 (1+3.5%)^(-20)
V=$1,000 (1.035)^(-20)
V=$1,000 (0.50256588443166983011062950537287)
V=$502.57

 

[DexterOnline]

Good catch, Sir Dexter ;-)

That's the kind of Bond Valuation they teach at higher academia across US learning which helps nothing more that find valuation of defualt-less zero coupon bond

Whereas the actual valuation process requires knowing stochastic calculus to determine the Implied forward rates from Term structure (forward zero coupon yields) from Treasury Yield curve (yields on coupon bearing bonds of different maturities and same characteristics)

But then if they were to teach all of that to undergrad finance students across US academia, the truth about the real "value" of US debt will become part of Every day financial truth almanac