Problem: A 15-year, $1,000 par value zero-coupon rate bond is to be issued to yield 10 percent.
Q1. What should be the initial price of the bond? (Take the present value of $1,000 to be received after 15 years at 10 percent, using Appendix B at the back of the text.)
Q2. If immediately upon issue, interest rates dropped to 8 percent, what would be the value of the zero-coupon rate bond?
Q3. If immediately upon issue, interest rates increased to 12 percent, what would be the value of the zero-coupon rate bond?