question archive Determine the yield to maturity of an 8-year zero coupon bond ($1,000 par value) that is currently selling for $521
Determine the yield to maturity of an 8-year zero coupon bond ($1,000 par value) that is currently selling for $521
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Determine the yield to maturity of an 8-year zero coupon bond ($1,000 par value) that is currently selling for $521. (Input your answer as a whole number. For example: 6.25% = 6.25)
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Answer:
| Yield to maturity of zero coupn bond can be calculated by using present value formula | |||||
| because price of the zero coupon bond is equal to present value of its maturity amount which is $1000 | |||||
| PV= FV/(1+r)^n | |||||
| Where, | |||||
| FV= Future Value | |||||
| PV = Present Value | |||||
| r = Interest rate | |||||
| n= periods in number | |||||
| 521= $1000/( 1+r)^8 | |||||
| 521/1000 =1/(1+r)^8 | |||||
| 0.521=1/(1+r)^8 | |||||
| r =8.49% | |||||
| Answer = 8.49% | |||||
