A firm issues zero-coupon bonds with a face value of $1,000 and time to maturity of 26 months. The bonds are currently trading at $751.4. What is the annual yield on this bond? Answer in percent, rounded to one decimal place (5.428% --> 5.4).

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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A firm issues zero-coupon bonds with a face value of $1,000 and time to maturity of 26 months. The bonds are currently trading at $751.4. What
is the annual yield on this bond? Answer in percent, rounded to one decimal place (5.428% --> 5.4).
Transcribed Image Text:A firm issues zero-coupon bonds with a face value of $1,000 and time to maturity of 26 months. The bonds are currently trading at $751.4. What is the annual yield on this bond? Answer in percent, rounded to one decimal place (5.428% --> 5.4).
Expert Solution
Step 1

To calculate zero coupon yield:

Zero coupon bond yield=FACE VALUEPRESENT VALUE1n-1n=number of periods

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