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Assume a zero-coupon bond that sells for $403 and will mature in 10 years at $1,250. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator
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Assume a zero-coupon bond that sells for $403 and will mature in 10 years at $1,250. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. What is the effective yield to maturity

User Takeshi Tokugawa YD
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The effective yield to maturity of the zero coupon bond given the sellign price and the maturity value is 12%.

What is the yield to maturity?

A zero-coupon bond is a bond that does not pay interest during its life. The yield to maturity of a bond is the discount rate that equates the cost of the bond to the maturity value.

The yield to maturity can be determined using a financial caculator:

  • Cash flow in year 0 = -403
  • Cash flow in year 1 to 9 = 0
  • Cash flow in year 10 = 1250

Yield to maturity = 12%

User Aju John
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