Question

If a zero-coupon bond has face value of $1000.

The bond has 6 years to mature. The current bond price is $480. The
yield to maturity (YTM) of the bond is ____%?
hint: you are calculating the discount

Answer 1

The yield to maturity (YTM) of a zero-coupon bond with a face value of $1,000 that matures in 6 years and has a current price of $480 is 12.92%.

Step-by-step explanation:

To calculate the yield to maturity (YTM) of a zero-coupon bond with a face value of $1,000, maturing in 6 years, and currently priced at $480, we would use the formula for YTM of a zero-coupon bond:

YTM = [(Face Value / Present Value)^(1/n)] - 1

Plugging the values into the formula gives us:

YTM = [($1,000 / $480)^(1/6)] - 1

First, calculate the ratio: $1,000 / $480 = 2.083333

Next, take the 6th root of 2.083333: (2.083333)^(1/6) = approximately 1.1292

Finally, subtract 1 from the result: 1.1292 - 1 = 0.1292 or 12.92%

Therefore, the yield to maturity of the bond is 12.92%.