If a $1,000 face-value discount bond maturing in one year has an yield of 5%, then...

If a $1,000 face-value discount bond maturing in one year has an yield of 5%, then its price is??
plz solve it correctly and ASAP only right answer will be rated.. don't waste my question if you have no knowledge about it

Expert Solution

Answer :

Face value of the discount bond = F = $1000

Years to maturity = n = 1 year

Current Price = P

Yield to maturity = Y = 5% = 0.05

Yield of a discount bond can be calculated by the formula :

Yield to maturity = (Face value / Current Price)^(1 / Years to maturity) - 1

0.05 = ($1000 / P)^(1 / 1) - 1

0.05 + 1 = $1000 / P

1.05 = $1000 / P

P = $1000 / 1.05 = $952.38

Thus, $952.38 is the current price of the discount bond.

Rahul Sunny answered 2 years ago

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