A zero-coupon bond with a $1000 face value has 7 years left until maturity.If its current price is $786,then the yield to maturity on this bond is approximately:
A)3.5%
B)1.27%
C)1.03%
D)0.035%
E)7%

Question

Quizplus · Accepted Answer

The yield to maturity (YTM) for a zero-coupon bond can be calculated using the formula: $$YTM = \left(\frac{Face\ Value}{Current\ Price}\right)^{\frac{1}{Years\ to\ Maturity}} - 1$$. Plugging in the given values: $$YTM = \left(\frac{1000}{786}\right)^{\frac{1}{7}} - 1 \approx 0.035 \text{ or } 3.5\%$$.

A Zero-Coupon Bond with a $1000 Face Value Has 7