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Suppose you have the choice of investing in (1) a zero-coupon bond, which costs $513.60 today, pays nothing during its life, and then pays $1,000 after five years, or (2) a bond that costs $1,000 toda
Suppose you have the choice of investing in (1) a zero-coupon bond, which costs $513.60 today, pays nothing during its life, and then pays $1,000 after five years, or (2) a bond that costs $1,000 today, pays $113 in interest semiannually, and matures at the end of five years. Which bond would provide the higher yield?
I would like to know how to do this manually and without excel