A zero-coupon bond is a security that pays no interest, and is therefore bought at a substantial discount from its face value. If stated interest rates are 4% annually (with quarterly compounding) how much would you pay today for a zero-coupon bond with a face value of $2,700 that matures in 6 years?

Answer:You pay today for a $2124.7Step-by-step explanation:Consider the provided information,Interest rates are 4% annually with a face value of $2,700 that matures in 6 years.Total number of months = n = 6 × 12 = 72Interest is 4% annually which can be written as:i = 0.04/12 = 0.00333...FV is $2700.Now, use the formula:[tex]FV = PV (1+i)^n[/tex]Substitute the respective value in above formula.[tex]2700= PV (1+0.0033)^{72}[/tex][tex]\frac{2700}{ (1+0.0033)^{72}}= PV[/tex][tex]\frac{2700}{ 1.27}= PV[/tex]On solving the above equation, we get the value of PV is:[tex] PV=2124.7[/tex]Hence, you pay today for a $2124.7