What is the yield to maturity for a Poughkeepsie Gypsy Fortune Tellers' zero coupon bond that matures in 14 years if the bond is selling for $530?
A) 5.84%
B) 4.64%
C) 4.28%
D) 5.49%

Question

Quizplus · Accepted Answer

To calculate the yield to maturity, we need to use the formula:
YTM = (Face Value/Present Value)^(1/n) - 1, where n is the number of years to maturity.
In this case, since it's a zero coupon bond, the present value is the same as the price of the bond ($530) and the face value is the amount the bond will be worth when it matures. We don't know the face value, but we can calculate it based on the years to maturity and the current price using the formula:
Face Value = Present Value / (1 + YTM)^n
Plugging in the values we know:
Face Value = $530 / (1 + YTM)^14
We can then rearrange the first formula to solve for YTM:
YTM = ((Face Value/Present Value)^(1/n)) - 1
YTM = ((530/Face Value)^(1/14)) - 1
YTM = (1/1.757) - 1
YTM = 0.464 or 4.64%
Therefore, the answer is B.

What Is the Yield to Maturity for a Poughkeepsie Gypsy