Maturity (years)1 2 3 4 5 Price $97.25 $94.53 $91.83 $89.23 $87.53
The above table shows the price per $100-face value bond of several risk-free, zero-coupon bonds. What is the yield to maturity of the two year, zero-coupon, risk-free bond shown?

Question

Quizplus · Accepted Answer

The yield to maturity (YTM) for a zero-coupon bond is calculated using the formula: YTM = [(Face Value / Price)^(1/n)] - 1, where n is the number of years to maturity. For the two-year bond: YTM = [(100 / 94.53)^(1/2)] - 1 ≈ 2.85%.

Maturity (Years)1 2 3 4 5 Price $97