Topics › Zero-Coupon Bond – Price
Zero-Coupon Bond – Price
Calculates today's price of a zero-coupon bond so that it yields the desired return until maturity (redemption at 100).
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What you learn
With a zero-coupon bond there is no interest payment – the return lies entirely in the discount: the higher the yield demanded, the lower the issue price below 100.
→ Story & full explanation: Issue price of a zero-coupon bond
Formula
Price = 100 / (1 + i)^n
How the formula works
Price = 100/(1+i)ⁿ is pure discounting of the redemption value. Since a zero-coupon bond pays no ongoing interest, the entire return lies in the discount of the purchase price below 100 – if the market rate rises, the price falls.
Discounting the redemption value with the market yield.
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