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A zero coupon bond with a face value of $1,000 is issued with an initial price of $537.85. The bond matures in 20 years. What is the implicit interest, in dollars, for the first year of the bond's life?

Respuesta :

Answer:

Ans. Implicit interest rate = 3.14946%

Explanation:

Hi, in order to find the implicit interest rate, we need to use the following equation.

[tex]ImplicitRate=\sqrt[n]{\frac{FaceValue}{Price} } -1[/tex]

Therefore

[tex]ImplicitRate=\sqrt[20]{\frac{1000}{537.85} } -1=0.0314946[/tex]

So, the implicit rate of this zero-coupon bond is=3.14946%

Best of luck

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