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a zero-coupon bond with face value $1,000 and maturity of five years sells for 946.22. Its...

a zero-coupon bond with face value $1,000 and maturity of five years sells for 946.22. Its YTM is

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Answer #1

Ans : Zero-Coupon Bond Formula

The formula for calculating the yield to maturity on a zero-coupon bond is:

Yield To Maturity=(Face Value/Current Bond Price)^(1/Years To Maturity)−1

Consider a $1,000 zero-coupon bond that has two years until maturity. The bond is currently valued at $946.22,the price at which it could be purchased today. The formula (1000/946.22)^(1/5)-1.

When solved, this equation produces a value of 0.0528which would be rounded and listed as a yield of 5.28%.

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