Question

A zero-coupon bond with face value $1,000 and maturity of 3 years sells for $846.0. What is its yield to maturity? Enter your answer as a decimal, rounded to four decimal places Your Answer: Answer

Answer 1

Let y be the yield to maturity.

Hence, we have;

$Price = \frac{(face value)}{(1+y)^{3}}$

$\therefore 846 = \frac{(1000)}{(1+y)^{3}}$

$\therefore (1+y)^{3} = \frac{(1000)}{846}$

Hence, y = 0.057328 = 5.7328%