Question

The following table shows some data for three zero-coupon bonds. The face value of each bond is $1,000.

Bond	Price			Maturity (Years)			Yield to Maturity
A	$	320			20			—
B		320			—			10	%
C		—			12			9

a. What is the yield to maturity of bond A? (Do not round intermediate calculations. Enter your answer as a percent rounded to 3 decimal places. Assume annual compounding.)

b. What is the maturity of B? (Do not round intermediate calculations. Round your answer to 2 decimal places. Assume annual compounding.)

c. What is the price of C? (Do not round intermediate calculations. Round your answer to 2 decimal places. Assume annual compounding.)

Answer 1

a)	Yield to maturity of Bond A:
	The price of Bond A ($320) is the PV of the
	face value which is payable after 20 years
	when discounted at the YTM rate.
	Hence,
	$320 = 1000/(1+r)^20, where r is the YTM
	Solving for r
	r = (1000/320)^(1/20)-1 = 5.86%
	YTM = 5.86%
	[CHECK: 1000/1.0586^20 = 320.16 APPROX 320]
b)	Similarly, for Bond B, [YTM given, n not given]
	$320=1000/(1.1)^n
	Solving for n
	3.125 = 1.1^n
	Taking log of both sides
	log3.125 = n*log1.1
	n = log3.125/log1.1 = 0.49485002168/0.041392685158 =	11.96 years Maturity
	[CHECK: 1000/1.1^11.96 = 319.85 APPROX 320]
3)	Here, price is to be found out.
	Price = 1000/1.09^12 = $355.53