A risk-free,zero-coupon bond with a $5000 face value has ten years to maturity.The bond currently trades at $3650.What is the yield to maturity of this bond?

Question

Quizplus · Accepted Answer

The yield to maturity (YTM) of a bond is the annual rate of return an investor can expect to receive if they hold the bond until maturity. It is calculated using the following formula:YTM = (FV - PV) / PV * (1 / N)where:FV = face value of the bondPV = present value of the bondN = number of years to maturityIn this case, the face value of the bond is $5000, the present value is $3650, and the number of years to maturity is 10. Plugging these values into the formula, we get:YTM = (5000 - 3650) / 3650 * (1 / 10)= 0.03197= 3.197%Therefore, the yield to maturity of this bond is 3.197%.

A Risk-Free,zero-Coupon Bond with a $5000 Face Value Has Ten