A 5-year, $1,000 par value, zero-coupon rate bond is to be issued to yield 10%.
a. What should be the initial price of the bond?
b. If immediately upon issue, interest rates dropped to 8%, what would be the value of the zero-coupon rate bond?
c. If immediately upon issue, interest rates increased to 12%, what would be the value of the zero-coupon rate bond?