Solved: Zero-coupon bond prices, A 2-year $1,000 par zero-coupon bond is currently priced at, Finance Basics

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Zero-coupon bond prices

Problem:

A 2-year $1,000 par zero-coupon bond is currently priced at $819.00. A 2-year $1,000 annuity is currently priced at $1,712.52. Assume: a. the pure expectations theory of interest rates holds, b. neither bond has any default risk, maturity premium, or liquidity premium, and c. you can purchase partial bonds. If you want to invest $10,000 in one of the two securities, which is a better buy?

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Finance Basics: Zero-coupon bond prices

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