An investor purchases a 30-year, zero-coupon bond with a face value of $1000 and a yield to maturity of 6.5%. He sells this bond ten years later. What is the rate of return on his investment, assuming yield to maturity does not change?

Question

Quizplus · Accepted Answer

The rate of return on a zero-coupon bond held to maturity is equal to the yield to maturity at the time of purchase, which is 6.5% in this case. Since the yield to maturity does not change, the rate of return remains 6.5%.

An Investor Purchases a 30-Year, Zero-Coupon Bond with a Face