Current Price =

Discount Rate =

Years =

Compound Timing = 2

Par Value =

Determines the return on a zero-coupon bond. Zero-coupon bonds are also known as discount or deep discount bonds.

From [http://en.wikipedia.org/wiki/Zero-coupon_bond|Wikipedia]: "A zero-coupon bond is a bond bought at a price lower than its face value, with the face value repaid at the time of maturity. It does not make periodic interest payments, or have so-called 'coupons,' hence the term zero-coupon bond. Investors earn return from the compounded interest all paid at maturity plus the difference between the discounted price of the bond and its par (or redemption) value. Examples of zero-coupon bonds include U.S. Treasury bills, U.S. savings bonds, long-term zero-coupon bonds, and any type of coupon bond that has been stripped of its coupons."

- Current Price: price paid today for the bond

- Discount Rate: rate of return of the investment expressed as a percentage

- Years: number of years to maturity

- Compound Timing: how often interest is compounded

- Par Value: face value (value of the bond at maturity)

You were given a $100 savings bond (purchase value is $50) that has a discount rate of 8%. If interest compounds semi-annually, what is the value of the bond after seven years?

- Current Price: 50.00

- Discount Rate: 8.0%

- Years: 7

- Compound Timing: 2x/Year

The bond is worth $86.58.

Current Price

Discount Rate

Years

Compound Timing

Par Value

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Zero Coupon