Consider the following $1,000 par value zero-coupon bonds: $$\begin{array} { l c c }
\text { Bond } &\text { Years to Maturity } & \text { Price } \
\hline \text { A } & 1 & \$ 909.09 \
\text { B } & 2 & \$ 811.62 \
\text { C } & 3 & \$ 711.78 \
\text { D } & 4 & \$ 635.52
\end{array}$$
The yield to maturity on bond B is _________.

Question

Consider the following $1,000 par value zero-coupon bonds: $$\begin{array} { l c c } 
\text { Bond } &\text { Years to Maturity } & \text { Price } \
\hline \text { A } & 1 & \$ 909.09 \
\text { B } & 2 & \$ 811.62 \
\text { C } & 3 & \$ 711.78 \
\text { D } & 4 & \$ 635.52
\end{array}$$
The yield to maturity on bond B is _________.

Quizplus · Accepted Answer

The yield to maturity on a zero-coupon bond is the annual rate of return that equates the present value of the bond's future cash flows to its current price. In this case, the present value of the bond's future cash flow is $1,000, and its current price is $811.62. Using a financial calculator, we can solve for the yield to maturity, which is approximately 11%.

Consider the Following $1,000 Par Value Zero-Coupon Bonds The Yield to Maturity on Bond B Is _________