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 C 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 C 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 bond's future cash flow is $1,000, and its current price is $711.78. Using the formula for the present value of a single future cash flow, we can solve for the yield to maturity:$$PV = \frac{FV}{(1 + r)^n}$$where:* PV is the present value* FV is the future value* r is the annual rate of return* n is the number of yearsSubstituting the given values into the formula, we get:$$711.78 = \frac{1,000}{(1 + r)^3}$$Solving for r, we get:$$r = 12%$$Therefore, the yield to maturity on bond C is 12%.

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