A $1,000 face value STRIPS with 12 years to maturity is quoted at 54.75. What is its yield to maturity?
A) 5.08%
B) 4.93%
C) 5.86%
D) 2.04%
E) 3.09%

Question

Quizplus · Accepted Answer

The yield to maturity (YTM) can be calculated using the formula for zero-coupon bonds: YTM = [(Face Value / Present Value)^(1/n)] - 1, where n is the number of years to maturity. Plugging in the values: YTM = [(1000 / 547.5)^(1/12)] - 1, which approximately equals 5.08%.

A $1,000 Face Value STRIPS with 12 Years to Maturity