as we know zero-coupon bonds are issued

Question

As we know, zero-coupon bonds are issued without any periodic coupon payments. The investor gets the interest and the principal on a maturity date. The interest is the difference between the purchase price and the maturity value. The price of this bond is computed as follows:

         V₀  = M/(1 + r)ⁿ                                                                      .... Eq. (4) 

Where,

         V₀      =       Value of the bond

         M       =       Maturity value

         r         =       Expected rate of return

         n         =       Period of the bond.