Bonds
Bonds
Bonds
You also want an ePaper? Increase the reach of your titles
YUMPU automatically turns print PDFs into web optimized ePapers that Google loves.
Zero <strong>Bonds</strong><br />
• bonds that bear no interest (explicitly) and are issued solely for<br />
cash<br />
• also called deep discount bonds<br />
Example: An 8-year zero bond with face value of € 10 million<br />
(10.000 x € 1.000 each) is issued and sold at a price of € 3.270.000.<br />
• What is the implicit interest rate ?<br />
€3.270.000<br />
= €10.000.000⋅(1<br />
+ i)<br />
−8<br />
i =<br />
10.000.000<br />
8 −1<br />
3.270.000<br />
=<br />
0,14999<br />
• The implicit interest rate is 15%. It is the interest rate that<br />
equates (in present value terms) the cash received with the<br />
amounts to be paid in the future.<br />
44
Change language