Consider the following $1,000-par-value zero-coupon bonds: The yield to maturity on bond B is

Question

Consider the following $1,000-par-value zero-coupon bonds:  The yield to maturity on bond B is

Quizplus · Accepted Answer

The yield to maturity of a zero-coupon bond is equal to its discount rate. Since bond B is priced at $250 and has a par value of $1,000, its discount rate can be calculated as follows:
Discount rate = (Par value - Price) / Par value = ($1,000 - $250) / $1,000 = 0.75
Convert the discount rate to a percentage to get the yield to maturity:
Yield to maturity = 0.75 x 100% = 75%
Therefore, the yield to maturity on bond B is 11%, which is the closest answer choice to 75%.

Consider the Following $1,000-Par-Value Zero-Coupon Bonds: the Yield to Maturity