When solved, this equation produces a value of 0. Find the value of the zero-coupon bond as at 31 December and Andrews expected income for the financial year 20X3 from the bonds. Since there are no interim cash flows, the investor is assured of a fixed rate of return.
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Generally, bonds that are riskier will require a higher rate of return in order to attract buyers. They are also more advantageous when placed in retirement accounts where they remain tax-sheltered.