What is the yield to maturity of a one-year,risk-free,zero-coupon bond with a $10,000 face value and a price of $9600 when released?
A)3.212%
B)4.000%
C)4.167%
D)9.600%
E)5.140%

Question

Quizplus · Accepted Answer

The formula for Yield to Maturity (YTM) of a zero-coupon bond is:

YTM = [(Face Value/Price)^(1/Time Period)] - 1

Here, Face value = $10,000, Price = $9,600, and Time Period = 1 year.
Substituting these values in the formula, we get:

YTM = [(10,000/9,600)^(1/1)] - 1
    = (1.0417) - 1
    = 0.0417
    = 4.167%

Therefore, the Yield to Maturity of the bond is 4.167%. Option C is the correct answer.

What Is the Yield to Maturity of a One-Year,risk-Free,zero-Coupon Bond