Grace Corp. has a zero-coupon bond outstanding that matures in 15 years. This bond is selling for $327.50 today and will pay $1,000 at maturity. What is the yield to maturity to the investor who buys the bond and holds it until maturity?

Question

Quizplus · Accepted Answer

The yield to maturity is the annual rate of return an investor can expect to receive if they hold the bond until maturity. To calculate the yield to maturity, we can use the following formula:YTM = (FV / PV)^(1/n) - 1where:YTM = yield to maturityFV = face value of the bondPV = present value of the bondn = number of years to maturityIn this case, the face value of the bond is $1,000, the present value of the bond is $327.50, and the number of years to maturity is 15. Plugging these values into the formula, we get:YTM = (1000 / 327.50)^(1/15) - 1YTM = 0.0923YTM = 9.23%Therefore, the yield to maturity to the investor who buys the bond and holds it until maturity is 9.23%.