Many years ago, Topnotch Knives issued a zero coupon bond with a $1,000 face value. The bond matures in three years. If the current market rate on similar bonds is 11 percent, (a) what is the bond’s current value? Suppose the market rate stays at 11 percent for the next three years. What (b) current yield and (c) capital gains yield will bondholders receive each year during the remainder of the bond’s life?
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