To find the price of a zero-coupon bond, we use the formula for the present value of a zero-coupon bond:

$P = \frac{F}{(1 + r)^t}$

Where:

• $P$ is the price of the bond,
• $F$ is the face value of the bond (which is $5000 in this case),
• $r$ is the yield-to-maturity (5% or 0.05),
• $t$ is the time to maturity (2 years).

Now, let's plug in the values:

$P = \frac{5000}{(1 + 0.05)^2}$ $P = \frac{5000}{(1.05)^2}$ $P = \frac{5000}{1.1025}$ $P \approx 4535.30$

So, the price of the zero-coupon bond is approximately $4535.30.

Would you like more details on how this works or further clarification?

Here are 5 related questions:

1. How would the price of the bond change if the yield-to-maturity were 6% instead of 5%?
2. What happens to the price of a zero-coupon bond if the time to maturity increases?
3. How is the price of a coupon bond different from a zero-coupon bond?
4. What is the concept of "yield-to-maturity" (YTM) in the context of bonds?
5. How do interest rate changes impact the price of a zero-coupon bond?

Tip: Remember, zero-coupon bonds don’t make periodic interest payments; they are sold at a discount and redeemable at face value at maturity. The price is lower than the face value due to the time value of money.