If an investor has a required rate of return of 10% on a 20-year zero coupon bond with a par value of $1500, what should the investor pay for the bond when it is issued?
a) $437.12
b) $997.24
c) $578.23
d) $222.97
e) None of the Above


The correct answer is d.
The value of a zero coupon bond is the present value of the lump-sum principal payment. There is no semi-annual coupon payments, only the principal repayment (of $1500) at maturity. Therefore the yield of the zero coupon bond equals the PV of the par value. In this question, the beginning value of the bond would be 1500 / (1.10^20) = $222.97.

Have a Financial Question?


  1. What are the differences between a Chartered Financial Analyst (CFA) and a Certified ...

    Understand the differences between a Chartered Financial Analyst and a Certified Financial Planner. Learn how each approaches ...
  2. How do I become a Chartered Financial Analyst (CFA)?

    Understand what it means to hold the Chartered Financial Analyst designation. Learn how a candidate can work to become a ...
  3. What types of positions might a Chartered Financial Analyst (CFA) hold?

    Understand what types of positions a Chartered Financial Analyst can hold. Learn what is available to those who have only ...
  4. Who benefits the most from prepaid expenses?

    Learn who benefits most when expenses are prepaid. Individuals and businesses often make payments, such as rent or insurance, ...
  1. Personal Financial Advisor

    Professionals who help individuals manage their finances by providing ...
  2. CFA Institute

    Formerly known as the Association for Investment Management and ...
  3. Chartered Financial Analyst - CFA

    A professional designation given by the CFA Institute (formerly ...
  4. Security Analyst

    A financial professional who studies various industries and companies, ...

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!