A one-year discount bond has a face value of $1,500 and a price of $1,200. What is the yield to maturity?

Question

Quizplus · Accepted Answer

The yield to maturity (YTM) on a discount bond can be calculated using the formula: YTM = (Face Value - Price) / Price. Plugging in the given values: YTM = ($1,500 - $1,200) / $1,200 = $300 / $1,200 = 0.25 or 25%. However, the correct calculation is YTM = ($1,500 - $1,200) / $1,200 = 0.25 or 25%, indicating an error in my initial response. The correct answer, based on the correct calculation, should indeed be C) 25%.

A One-Year Discount Bond Has a Face Value of $1,500