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Math Help - coupons

  1. #1
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    Question coupons

    what is the price of a five year, zero coupon, default free security with a face value of $1000
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  2. #2
    MHF Contributor
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    Is there an expected return or is this just stuffing it in a matress?
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  3. #3
    Junior Member
    Joined
    Jun 2009
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     1,000(1 + r)^{-5} ... where r is your risk-free rate (expressed as an annual rate), will price the zero for ya.

    This assumes annual compounding; if your risk-free rate is given to you in a form that contemplates a different compounding period, you'll have to adjust the pricing formula accordingly.

    Cheers!
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