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8. (Modified from Question #13, Chapter 3) What is the total return of a 20-year...

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Accounting

8. (Modified from Question #13, Chapter 3) What is the total return of a 20-year zero coupon bond that offering a yield to maturity of 8% if the bond is held to maturity?

Step 0: Calculate the price of the zero-coupon bond: 1000/(1+4%)^40 = ?

Step 1: Calculate coupon interest + interest on interest N=40, YTM=4, PV=0, PMT=0 FV = 0

Step 2: Determine the projected sale price at the end of the 20-year holding period PV=1000

Step 3: Get the total of steps 1 and 2 ?

Step 4: Semi-annual return (1000/208.29)1/40-1=?

Step 5: annual return = ?

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