Suppose you are working in an investment company as a Financial Analyst. Your company wants to invest in zero-

Suppose you are working in an investment company as a Financial Analyst. Your company wants to invest in zero-coupon bonds of Pak Steels Limited. These bonds have a face value of Rs.2000 per bond and have five years to maturity. If your company decided to have a 10% p.a return on this investment, then what price would you recommend per bond to purchase these zero-coupon bonds of Pak Steels Limited

The math depends slightly depending on what 10% annual return indicates (specifically, if you want the return to be compounded).

However, the principle here is that if you're looking at a zero coupon bond, there are no interest payments, so the return is going to be exclusively realized in getting the principal back. Also, since we're talking about returns, we won't include factors such as the riskless rate, etc.

Basically, you have the following:

Today: Pay $X to receive bond
5 Years Later: Receive $2000
Desired return: 10%

Using the more simple example of an uncompounded bond, the formula is:

Future = Today * (1 + rate) ^ time

$2000 = $X * (1.10) ^ 5

Backing it out, $X = $1241.82

In this case, having a zero coupon bond makes the math easy. Had it paid a coupon, it would have been a tad more complicated.