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Value or Yield to Maturity of a zero coupon bond
Financial - Investing
Tuesday, 12 May 2009 10:48

With the example below you can compute the value and yield to maturity of a zero coupon bond. This example uses te bond calculator.

A zero coupon bond is a bond that does not pay any interest. Such a bond is sold for less than its nominal value. Other names are Bullet or Zerobond.

Suppose there is a zero coupon bond on 2009-05-14 with a nominal value of $ 1000. The bond is traded for $ 900 and its maturity date is 2012-12-31. You want to compute its yield to maturity such that you can compare it with other bonds.

To do this enter the following data into the bond calculator:

Field nameValueRemark
Nominal interest0Zero interest for a zero coupon bond
Coupon period12 monthsDoes not matter, but for other values than 12, 6 or 3 months the calculator produces small rounding differences.
Date computation2009-05-14The date format is YYYY-MM-DD.
Maturity date2012-12-31
Interest in advance or afterwardsafterwardsDoes not matter for a zero coupon bond.
Nominal value1000Amount paid on the maturity date.
Compute Yield to Maturity or ValueYield
Market Value900value bond on the computation date.
Add coupon to market valueCheckedDoes not matter for a zero coupon bond.

Finally click Compute. The computed value will appear in the field Yield to Maturity.

You can compute the value with the same calculator: enter the (desired) yield instead of the market value. The price as usually listed on an exchange will appear in the field Value excluding current or last coupon. The total value of the bond will appear in field Value including current or last coupon.