$\begin{array}{cc}
\text { Year } & \text { 1-Year Forward Rate } \
1 & 4.6\% \
2 &4.9\% \
3 & 5.2\% \
4 & 5.5\% \
5 &6.8\%
\end{array}$
What is the yield to maturity of a 4-year bond?
A) 4.69%
B) 4.95%
C) 5.02%
D) 5.05%
E) 5.08%

Question

$\begin{array}{cc}
\text { Year } & \text { 1-Year Forward Rate } \
1 & 4.6\% \
2 &4.9\% \
3 & 5.2\% \
4 & 5.5\% \
5 &6.8\%
\end{array}$
 What is the yield to maturity of a 4-year bond?
A) 4.69%
B) 4.95%
C) 5.02%
D) 5.05%
E) 5.08%

Quizplus · Accepted Answer

The yield to maturity (YTM) of a 4-year bond can be calculated using the average of the 1-year forward rates for years 1 through 4. The calculation is as follows: $\frac{4.6\% + 4.9\% + 5.2\% + 5.5\%}{4} = 5.05\%$.

Year 1-Year Forward Rate 14.6%24.9%35.2%45.5%56.8%\begin{array}{cc}\text { Year } & \text { 1-Year Forward Rate } \\1 & 4.6\% \\2 &4.9\% \\3 & 5.2\% \\4 & 5.5\% \\5 &6.8\%\end{array} Year 12345​ 1-Year Forward Rate 4.6%4.9%5.2%5.5%6.8%​

$\begin{array}{cc}\text { Year } & \text { 1-Year Forward Rate } \\1 & 4.6\% \\2 &4.9\% \\3 & 5.2\% \\4 & 5.5\% \\5 &6.8\%\end{array}$