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You are considering the purchase of a Pure Discount Bond with a Face Value of $10,000,...

You are considering the purchase of a Pure Discount Bond with a Face Value of $10,000, which matures in forty-three days. In the markets this bond is selling for $9,966.95. If you purchase the bond at this price what is the annualized Yield-to-Maturity (YTM) on the investment? (The answer is a percent, round your answer to two decimal place, e.g. 4.75)

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Answer #1

Bond Par Value = $10,000

Bond Price = $9,966.95

So,

10,000 = 9,966.95(1 + r)43/365

r = (10,000/9,966.95)365/43 - 1

r = 2.85%

Annualized Yield to Maturity = 2.85%

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