Recycler Battery Corporation (RBC)issued zero coupon bonds 5 years ago at a price of $214.50 per bond.RBC's zeros had a 20-year original maturity,with a $1,000.00 par value.The bonds were callable 10 years after the issue date at a price 8% over their accrued value on the call date.If the bonds sell for $250.00 in the market today,what annual rate of return should an investor who buys the bonds today expect to earn on them?

Question

Quizplus · Accepted Answer

The annual rate of return can be calculated using the formula for the yield to maturity (YTM) of a zero-coupon bond. Given the current price of $250, the par value of $1,000, and the remaining maturity of 15 years (20 years original maturity minus 5 years since issuance), the YTM is approximately 9.68%.

Recycler Battery Corporation (RBC)issued Zero Coupon Bonds 5 Years Ago