Assume that the following data on U.S. Treasury securities is current:
-Refer to the information above. You purchase a $1,000, zero-coupon, Treasury bond that matures in five years. Assume the term structure remains constant and that you sell the bond
After holding it only three years. For what price can you sell it?
A)$917.66
B)$958.41
C)$1,135.71
D)none of the above

Question

Assume that the following data on U.S. Treasury securities is current: 
-Refer to the information above. You purchase a $1,000, zero-coupon, Treasury bond that matures in five years. Assume the term structure remains constant and that you sell the bond
After holding it only three years. For what price can you sell it?
A)$917.66 
B)$958.41 
C)$1,135.71 
D)none of the above

Quizplus · Accepted Answer

The correct answer is A because the price of a zero-coupon bond is equal to the present value of its future cash flows. In this case, the bond has a face value of $1,000 and matures in five years. If the term structure remains constant, the yield to maturity on the bond will also remain constant. This means that the present value of the bond's future cash flows will be equal to $917.66.

Assume That the Following Data on U