A zero-coupon bond is a bond that is sold now at a discount and will pay its face value at the time when it matures; no interest payments are made. A zero-coupon bond can be redeemed in 20 years for $ 10 comma 000. How much should you be willing to pay for it now if you want a return of: (a) 9% compounded monthly question mark (b) 9% compounded continuously?

P = $1664.12 pay with 9% compounded monthly  

P = 1652.98 pay with  9% compounded continuously

Explanation:

given data

time period = 20 year

amount = $10000

solution

we get here compound interest for 9% compounded monthly that is express as

FV =    .................1

here P is principal amount and r is interest rate and n compound in year and FV is future value

$10000 =  

solve it we get

P = $1664.12 pay with 9% compounded monthly  

and

for 9% compounded continuously

FV =   ............2

$10000 = P\times e^{0.09\times 20}

solve it we get

P = 1652.98 pay with  9% compounded continuously