J.K. issued a zero-coupon bond several years ago. The bond has 22 years left to maturity and sells for $229.67. What is the yield-to-maturity? Please show detail calculation. No excel calculation. No financial calculator answer. Thanks.
6.92%
| A zero coupon bond does not pay coupon. | ||||||||
| Face Value of bond is the future value of current price at yield to maturity. | ||||||||
| Face Value | = | Present Value | * | (1+i)^n | Where, | |||
| $ 1,000.00 | = | $ 229.67 | * | (1+i)^22 | i | = | ? | |
| 4.3540732 | = | (1+i)^22 | n | = | 22 | |||
| 4.3540732 | ^(1/22) | = | 1+i | |||||
| 1.0691551 | = | 1+i | ||||||
| 0.0691551 | = | i | ||||||
| So, | ||||||||
| Yield to maturity | = | 6.92% |
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