Cedar Links Recreation Inc.has issued ten-year zero-coupon bonds with a $1,000 face value.If the bonds are currently selling for $514.87,what is the yield to maturity?

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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. It is calculated using the following formula:YTM = (FV - PV) / PV * (1 / N)where:FV = 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 is $514.87, and the number of years to maturity is 10. Plugging these values into the formula, we get:YTM = (1000 - 514.87) / 514.87 * (1 / 10)= 0.0675= 6.75%Therefore, the yield to maturity is 6.75%.