Valuing a Zero-Coupon Bond
a. A zero-coupon bond with a par value of $1,000 matures in 10 years. At what price would this bond provide a yield to maturity that matches the current market rate of 8 percent?
b. What happens to the price of this bond if interest rates fall to 6 percent?
c. Given the above changes in the price of the bond and the interest rate, calculate the bond price elasticity.