The yield to maturity on a zero coupon, $1,000 par value bond which will mature in 10 years is 5%. The price of the bond is $500.

Question

Quizplus · Accepted Answer

The price of a zero-coupon bond is calculated using the formula: Price = Par Value / (1 + Yield to Maturity)^(Number of Years to Maturity). Given a $1,000 par value, a 5% yield to maturity, and a maturity of 10 years, the price would be $1,000 / (1 + 0.05)^10, which is approximately $613.91, not $500.

The Yield to Maturity on a Zero Coupon, $1,000 Par