In: Finance
For a zero coupon bond, use the following information to calculate its yield to maturity.
Years left to maturity = 10 years. Price = $250.
Price of Zero coupon bond = Face value / (1+Yield to maturity)^Number of years
250 = 1000 / (1+YTM)^10
By using cross multiplication
250 * (1+YTM)^10 = 1000
(1+YTM)^10 = 1000 / 250
(1+YTM)^10 = 4
(1+YTM) = 4^(1/10)
(1+YTM) =1.148698355
YTM = 1.148698355 -1
= 0.14869 or 14.87% [Option A is correct]