Anne Warner wants to buy zero-coupon bonds in order to protect herself from reinvestment risk. She plans to hold the bonds for fifteen years and requires a rate of return of 9.5%. Fifteen-year Treasuries are currently yielding 4.5%. If interest is compounded semiannually, the price Warner is willing to pay for each $1,000 par value zero-coupon bond is closest to: A) $249. B) $256. C) $498 What should be the answer to this. IMO B. But qbank says A.
I figured out my mistake. A should be correct. Thanks.
It says interest compounded semi annually, 1000/ [(1+ 9.5%/2) ^(15*2)] = 248.53 --> correct answer A
sidagg. I was not aware of your updated posting when I posted previous reply, so it was superfluous. Glad you figured out.