Question

You are considering the purchase of a zero Coupon Bond with a Face Value of $100,000, which matures in seven years. In the markets this bond is selling for $69,431.77. If you purchase the bond at this price what is the Yield-to-Maturity (YTM) on the investment? (The answer is a percent, round your answer to two decimal place, e.g. 4.75)

Answer 1

K = N

Bond Price =∑ [(Annual Coupon)/(1 + YTM)^k]     +   Par value/(1 + YTM)^N

k=1

K =7

69431.77 =∑ [(0*100000/100)/(1 + YTM/100)^k]     +   100000/(1 + YTM/100)^7

k=1

YTM% = 5.35