You are considering the purchase of a Zero Coupon Bond with a Face Value of $100,000, which matures in six years. In the markets this bond is selling for $81,097.58. If you purchase the bond at this price what is the Yield-to-Maturity (YTM) on the investment? (The answer is a percent, round your answer to two decimal places, e.g. 4.75) Numeric Response
You are considering the purchase of a Zero Coupon Bond with a Face Value of $100,000, which matures in six years. In the markets this bond is selling for $81,097.58. If you purchase the bond at this price what is the Yield-to-Maturity (YTM) on the investment? (The answer is a percent, round your answer to two decimal places, e.g. 4.75) Numeric Response
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
Problem 1PS
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Transcribed Image Text:You are considering the purchase of a Zero Coupon Bond with a Face Value of $100,000, which matures in six years. In the markets this bond is selling for $81,097.58. If you purchase the bond at this price what is the
Yield-to-Maturity (YTM) on the investment? (The answer is a percent, round your answer to two decimal places, e.g. 4.75)
Numeric Response
Expert Solution
Step 1: Introduction and Formula
Solution:
Zero coupon bonds (ZCB) are those bonds which do not pay periodic coupon payments, instead it pays bullet redemption amount at end of maturity.
So, price of ZCB = Face value / (1+r)n
where, r = periodic yield to maturity
n = number of periods
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