A risk-free, zero-coupon bond with a $5000 face value has ten years to maturity. The bond currently trades at $3650. What is the yield to maturity of this bond?

Question

Quizplus · Accepted Answer

The yield to maturity (YTM) can be calculated using the formula for a zero-coupon bond: YTM = [(Face Value / Present Value)^(1/n)] - 1, where n is the number of years to maturity. Plugging in the values: YTM = [(5000 / 3650)^(1/10)] - 1 ≈ 3.197%.

A Risk-Free, Zero-Coupon Bond with a $5000 Face Value Has