Question

a one-year zero coupon bond costs $ 99.43 $99.43 today. exactly one year from today, it will pay $ 100 $100. what is the annual yield-to-maturity of the bond? (i.e., what is the discount rate one needs to use to get the price of the bond given the future cash flow of $ 100 $100 in one year?)

Answer 1

To calculate the annual yield-to-maturity (YTM) of a zero-coupon bond, we can use the formula:

YTM = (Face Value / Price)^(1/n) - 1

Where:

Face Value is the future cash flow (in this case, $100)

Price is the current price of the bond (in this case, $99.43)

n is the number of years until maturity (in this case, 1 year)

Using the given values, we can calculate the YTM:

YTM = ($100 / $99.43)^(1/1) - 1

= (1.0056765) - 1

≈ 0.0056765

Converting this decimal to a percentage, the annual yield-to-maturity of the bond is approximately 0.56765%.

Step-by-step explanation: