Question

Determine the yield to maturity of an 8-year zero coupon bond ($1,000 par value) that is currently selling for $521. (Input your answer as a whole number. For example: 6.25% = 6.25)

Answer 1

Yield to maturity of zero coupn bond can be calculated by using present value formula
because price of the zero coupon bond is equal to present value of its maturity amount which is $1000
PV= FV/(1+r)^n
Where,
FV= Future Value
PV = Present Value
r = Interest rate
n= periods in number
521= $1000/( 1+r)^8
521/1000 =1/(1+r)^8
0.521=1/(1+r)^8
r =8.49%
Correct Answer = 8.49%