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What is the yield to maturity of a one-year, risk-free, zero-coupon bond with a $5,000 face value and a price of $4,550 when released? ..... O A. 9.89% B. 4.945% O C. 0.018% O D. 9%

What is the yield to maturity of a one-year, risk-free, zero-coupon bond with a $5,000 face value and a price of $4,550 when released? ..... O A. 9.89% B. 4.945% O C. 0.018% O D. 9%

Essentials Of Investments
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
Section: Chapter Questions
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**Question:** What is the yield to maturity of a one-year, risk-free, zero-coupon bond with a $5,000 face value and a price of $4,550 when released? **Options:** - **A.** 9.89% - **B.** 4.945% - **C.** 0.018% - **D.** 9% **Analysis:** The problem involves calculating the yield to maturity (YTM) for a zero-coupon bond. This bond type pays no periodic interest and is sold at a discount from its face value. The YTM is essentially the bond's annualized return if held to maturity. In this instance, the bond's face value is $5,000, and the initial purchase price is $4,550. The solution requires determining which percentage yield accurately represents this scenario.
Transcribed Image Text:**Question:** What is the yield to maturity of a one-year, risk-free, zero-coupon bond with a $5,000 face value and a price of $4,550 when released? **Options:** - **A.** 9.89% - **B.** 4.945% - **C.** 0.018% - **D.** 9% **Analysis:** The problem involves calculating the yield to maturity (YTM) for a zero-coupon bond. This bond type pays no periodic interest and is sold at a discount from its face value. The YTM is essentially the bond's annualized return if held to maturity. In this instance, the bond's face value is $5,000, and the initial purchase price is $4,550. The solution requires determining which percentage yield accurately represents this scenario.
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