Question

A one-year discount bond has a face value of $1000. If the current purchase price is $900, what is the yield to maturity?

a) 11.1%
b) 5%
c) 12.2%
d) 10%

Answer 1

The yield to maturity of the one-year discount bond with a face value of $1000 and a purchase price of $900 is 11.1%.

Step-by-step explanation:

The question is asking to calculate the yield to maturity (YTM) of a one-year discount bond. The bond has a face value of $1000, and the current purchase price is $900. To calculate YTM, you would use the formula: (Face Value - Purchase Price) / Purchase Price. This would be ($1000 - $900) / $900, which gives us 0.1111 or 11.1% when converted to a percentage. Therefore, the correct answer to this question is a) 11.1%.