Question

If the price of a 2-year zero-coupon bond is $747.33, what is its yield in percent rounded to the nearest basis point?

Answer 1

Given

Price of a 2 Year Zero Coupon Bond = $ 747.33

Let us assume that Par value of ZCB =$ 1000

We know that

Future Value = Present value ( 1+i)^n

Here i= Rate of interest

n = No.of Years

$ 1000= $ 747.33( 1+i)^2

$ 1000/$ 747.33 = ( 1+i)^2

1.338097 = ( 1+i)^2

1.338097^ 1/2 = 1+i

1.338097^0.5 = 1+i

1.156761= 1+i

1.156761-1 =i

0.1568 = i

Hence the rate of interest is 15.68%

So the Yield on the bond is 15.68%.

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