Assume a zero-coupon bond that sells for $745 will mature in 5 years at $1,200.

Question

Assume a zero-coupon bond that sells for $745 will mature in 5 years at $1,200. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.

What is the effective yield to maturity? (Assume annual compounding. Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Assume a zero-coupon bond that sells for $745 will mature in 5 years at $1,200. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.

Explanation / Answer

Hi,

Please find the detailed answer as follows:

Nper (I) = 5 (indicates the period)

FV = -745 (indicates the present value)

PV = 1200 (indicates the future/maturity value)

PMT = 0 (indicate the amount of interest)

Rate = ? (indicates yield to maturity)

Yield to Maturity = Rate(Nper,PMT,PV,FV) = Rate(5,0,-745,1000) = 6.06%

Thanks.

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