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With the deduction, we can now arrive at a formula for the price of a bond. The price of the zero-coupon bond paying $2 in the first year is $2/(1 + r)1. In year 2, similarly, the price of the zero-coupon bond paying $2 is $2/(1 + r)2. This process continues till year 10, where two payments are made, which are two zero-coupon bond prices: $2/(1 + r)10 and $100/ (1 + r)10. Therefore, the price of the bond is the sum of the prices of the individual zero-coupon bonds:


Cover of Interest Rate Markets: A Practical Approach to Fixed Income


discounted price calculation for bonds.