A twenty-year zero coupon bond with a face value of $1,000 is currently selling for $326.50.Assume that coupon payments are normally semi-annual.What is the bond's YTM?

Question

Quizplus · Accepted Answer

The correct answer is A because the bond's YTM is 5.68%. This can be calculated using the following formula:YTM = (FV / PV)^(1/n) - 1where:FV = face value of the bondPV = present value of the bondn = number of compounding periods per yearIn this case, the FV is $1,000, the PV is $326.50, and n is 2 (since coupon payments are semi-annual). Plugging these values into the formula, we get:YTM = (1000 / 326.50)^(1/2) - 1 = 5.68%

A Twenty-Year Zero Coupon Bond with a Face Value of $1,000