A one-year discount bond with a par value of $5,000 sold today,at issuance,for $4,750 has a yield to maturity of
A) 2.50%.
B) 5.00%.
C) 5.26%.
D) 9.75%.

Question

Quizplus · Accepted Answer

The yield to maturity (YTM) is the rate required to discount the future cash flows of the bond to match its market price. In this case, the bond is sold for $4,750 instead of its par value of $5,000, which means that it is sold at a discount of $250. 
To calculate the YTM, we need to find the interest rate that would make the present value of the bond's cash flows equal to its current price. 
PV = FV/(1+i)^n, where PV is the present value, FV is the future value, i is the interest rate, and n is the number of periods. For a one-year bond: 
4,750 = 5,000/(1+i) 
Solving for i, we get i = 0.0526 or 5.26%. 
Therefore, the correct answer is C.

A One-Year Discount Bond with a Par Value of $5,000