Question

There is a zero coupon bond that sells for $383.33 and has a par value of $1,000. If the bond has 17 years to maturity, what is the yield to maturity? Assume semiannual compounding. Multiple Choice Ο 5.49% Ο 5.53% Ο 5.80% Ο 572% Ο 5.58%

Answer 1

Current value=Par value/(1+YTM/2)^(2*time period)

383.33=1000/(1+YTM/2)^(2*17)

(1+YTM/2)^34=(1000/383.33)

1+YTM/2=(1000/383.33)^(1/34)

1+YTM/2=1.02860317

YTM=[1.02860317-1]*2

=5.72%(Approx).