For a zero coupon bond, use the following information to calculate its yield to maturity. Years...

For a zero coupon bond, use the following information to calculate its yield to maturity.

Years left to maturity = 10 years. Price = $250.

14.87%
14.35%
12.25%
11.51%

Solutions

Expert Solution

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]

jeff jeffy answered 2 years ago

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