Question

Assume a zero-coupon bond that sells for $156 and will mature in 20 years at $1,050....

Assume a zero-coupon bond that sells for $156 and will mature in 20 years at $1,050. 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? (Assume annual compounding. Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
  

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Homework Answers

Answer #1

Given data

Face value:FV = $1050

Present value:PV= -$156

Time to maturity:N = 20 years

PMT = 0

Annual Compounding

Financial Calculator solution

Put all the values in the financial calculator

We get I/Y = 10.00%

Appendix Solution

Present value factor = PV/FV

=$156/$1050

=0.1485

For period = 20 years in the present value factor table and a nominal factor of 0.149

We get effective YTM as 10.00%

Manual Solution

FV = PV(1+i)^n

1050 = 156(1+i)^20

i= (1050/156)^(1/20)-1

we get i = 10.00%

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