A $1,000 zero coupon bond is selling for $629.50 and has 7 years to maturity. What is the yield to maturity of the bond?

Question

Quizplus · Accepted Answer

The yield to maturity (YTM) can be calculated using the formula for a zero coupon bond: $ P = \frac{F}{(1 + r)^n} $, where $ P $ is the price, $ F $ is the face value, $ r $ is the yield, and $ n $ is the number of years to maturity. Solving for $ r $ using $ P = 629.50 $, $ F = 1000 $, and $ n = 7 $, we find that $ r \approx 6.84\% $.

A $1,000 Zero Coupon Bond Is Selling for $629