The following is a list of prices for zero-coupon bonds with different maturities and par values of $1,000. $$\begin{array} { c c }
\text { Maturity } & \text { Price } \
\text { (Years) } & \
1 & \$ 943.40 \
2 & 881.68 \
3 & 808.88 \
4 & 742.05
\end{array}$$ What is the yield to maturity on a 3-year zero-coupon bond?
A) 6.37%
B) 9.00%
C) 7.33%
D) 10.00%
E) None of the options are correct.

Question

The following is a list of prices for zero-coupon bonds with different maturities and par values of $1,000. $$\begin{array} { c c } 
\text { Maturity } & \text { Price } \
\text { (Years) } & \
1 & \$ 943.40 \
2 & 881.68 \
3 & 808.88 \
4 & 742.05
\end{array}$$ What is the yield to maturity on a 3-year zero-coupon bond?
A) 6.37%
B) 9.00%
C) 7.33%
D) 10.00%
E) None of the options are correct.

Quizplus · Accepted Answer

The yield to maturity (YTM) for a zero-coupon bond can be calculated using the formula: $(\frac{Face \ Value}{Price})^{\frac{1}{Years}} - 1$. For a 3-year bond: $(\frac{1000}{808.88})^{\frac{1}{3}} - 1 = 0.0733$ or 7.33%.

The Following Is a List of Prices for Zero-Coupon Bonds