Question

what is the implicit yield of zero-coupon bond that matures in 5 years, has face value of 100 and costs 60

Answer 1

10.76%

Step-by-step explanation:

Calculation for the implicit yield of zero-coupon bond

Using this formula

P(1 + i)n = F

Where,

P = 60

F = 100

n = 5 years

Let plug in the formula

First step

60(1+ i)5 = 100

Second Step

(1+ i)5 = 100 / 60

= 1.667

Third step to find the fifth root of 1.667

1 + i = 5th root of 1.667

= 1.1076

Last step is to calculate the implicit yield

i = 1.1076 - 1

i= 0.1076 *109

I= 10.76%

Therefore the implicit yield of zero-coupon bond will be 10.76%