If a $10,000 face value discount bond maturing in one year is selling for $9,000,then its yield to maturity is approximately
A) 9 percent.
B) 10 percent.
C) 11 percent.
D) 12 percent.

Question

Quizplus · Accepted Answer

Yield to maturity (YTM) is the rate of return anticipated on a bond if it is held until maturity, taking into account the bond's purchase price, face value, coupon rate, and time to maturity. We can use the following formula to calculate YTM:

YTM = [(face value / current price)^(1/n) - 1] x 100%

where n is the number of years to maturity.

In our case, the face value of the bond is $10,000, and it is selling for $9,000. Therefore, the current price of the bond is $9,000. Additionally, the maturity of the bond is one year, so n = 1. Plugging this into the formula, we get:

YTM = [(10,000 / 9,000)^(1/1) - 1] x 100%
YTM = [(1.111) - 1] x 100%
YTM = 11%

Therefore, the approximate yield to maturity of the bond is 11%, which is option C.

If a $10,000 Face Value Discount Bond Maturing in One