A zero-coupon bond which costs 51360 today pays nothing, Financial Management

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A zero-coupon bond which costs 51360 today pays nothing

Suppose you have a choice of investing in one of the following:

a. A zero-coupon bond, which costs $513.60, today, pays nothing during its life, and then pays $1,000 after 5 years.

b. A bond that costs $1,000 today, pays $113 in interest semiannually, and matures at the end of five years with a par value of $1,000 to be repaid. Which bond would provide the higher yield?

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Financial Management: A zero-coupon bond which costs 51360 today pays nothing

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Financial Management: A zero-coupon bond which costs 51360 today pays nothing

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