Zero-coupon bonds issued in 2016 are due in 2026.If they were originally sold at 55 percent of face value,the implied yield to maturity at issuance is

Question

Quizplus · Accepted Answer

The yield to maturity (YTM) of a zero-coupon bond can be calculated using the formula: $$YTM = \left(\frac{Face\ Value}{Purchase\ Price}\right)^{\frac{1}{n}} - 1$$ where $n$ is the number of years until maturity. Given that the bonds were sold at 55% of their face value and are due in 10 years (2026 - 2016), we can substitute these values into the formula to find the YTM. The calculation shows a YTM of approximately 6.17%, making option B correct.

Zero-Coupon Bonds Issued in 2016 Are Due in 2026