Zero coupon bond valuation
Zerocoupon bond valuation example. A zerocoupon bond does not have any coupon payments. It is sold at a lower price than the par value, and the par value will be repaid to the investor at maturity. Such a bond has only the cash flow equal toJun 03, 2011 The par value of the bond is the amount that the bond issuer will pay to the bond holder when the bond matures. The par value is typically 1, 000. Thus, in this example, 1, 000 divided by 1. 338 equals 747. 26. This means that the present value of a zero coupon bond providing a 6 rate of return by paying out 1, 000 at maturity is zero coupon bond valuation
Bond valuation is the determination of the fair price of a bond. As with any security or capital investment, the theoretical fair value of a bond is the present value of the stream of cash flows it is expected to generate.
What is a 'ZeroCoupon Bond' A zerocoupon bond is a debt security that doesn't pay interest (a coupon) but is traded at a deep discount, rendering profit at maturity when the bond is redeemed for its full face value. Zero coupon bonds are therefore sold at a discount to their face value. So for instance, a 10year zero coupon bond priced when prevailing yields were 3 wouldzero coupon bond valuation 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. When the bond reaches maturity, its investor receives its face value.
A zerocoupon bond involves only one cash inflow to the investor. This single cash inflow is the redemption amount received. The price of the bond will therefore be the discounted value of this redemption payment. zero coupon bond valuation A zero coupon bond is a reliable security for investors wanting predictable income at a fixed The Zero Coupon Bond: 2023, representing 4 of the 100 par value; A zerocoupon bond (also discount bond or deep discount bond) is a bond where the face value is repaid at the time of maturity. Note that this definition assumes a positive time value of money. It does not make periodic interest payments, or have socalled coupons , hence the term zerocoupon bond. A zero coupon bond, sometimes referred to as a pure discount bond or simply discount bond, is a bond that does not pay coupon payments and instead pays one lump sum at maturity. The amount paid at maturity is called the face value. How can the answer be improved?Rating: 4.79 / Views: 854