The yield to maturity of a 5-year,risk-free,zero-coupon bond is 4.25%.Its face value is $2,500,what is the cost of purchasing 5 of these zero-coupon bonds?

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Quizplus · Accepted Answer

The cost of purchasing one zero-coupon bond is calculated using the formula: $ \text{Present Value} = \frac{\text{Face Value}}{(1 + \text{Yield to Maturity})^{\text{Number of Years}}} $. For one bond, this is $ \frac{2500}{(1 + 0.0425)^5} \approx 2030.30 $. For 5 bonds, multiply this by 5, which equals approximately $10,151.49.

The Yield to Maturity of a 5-Year,risk-Free,zero-Coupon Bond Is 4