1 answer

On May 1, 2021, Joe purchased $220,000 in zero-coupon bonds that mature on May 1, 2041....

Question:

On May 1, 2021, Joe purchased $220,000 in zero-coupon bonds that mature on May 1, 2041. The bonds pay no interest during the

On May 1, 2021, Joe purchased $220,000 in zero-coupon bonds that mature on May 1, 2041. The bonds pay no interest during the period of time they are outstanding. The interest rate for such borrowings is at 8%. Interest compounds annually. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided. Enter your answer rounded to the nearest whole dollar.) Required: Calculate the price Joe paid for the bonds. Bond value

Answers

Face Value of Bonds = $220,000
Interest Rate = 8% compounded annually
Time to Maturity = 20 years

Purchase Price = $220,000 * PV of $1 (8%, 20)
Purchase Price = $220,000 * 0.2145
Purchase Price = $47,190

So, price paid by Joe is $47,190

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