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Keith_Richards [23]
3 years ago
10

Assume a zero-coupon bond that sells for $270 and will mature in 25 years at $1,850. Use Appendix B for an approximate answer bu

t calculate your final answer using the formula and financial calculator methods. What is the effective yield to maturity? (Assume annual compounding. Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Business
1 answer:
FromTheMoon [43]3 years ago
8 0

Answer:

8.00%

Explanation:

Data provided in the question:

Selling price of the bond i.e current value = $270

Future value = $1,850

Maturity time, t = 25 years

Now,

Effective yield to maturity, r = (\frac{\text{Future value}}{\text{Current value}})^{\frac{1}{t}}-1

on substituting the respective values, we get

Effective yield to maturity, r = (\frac{\$1,850}{\$270})^{\frac{1}{25}}-1

or

Effective yield to maturity, r = 1.0800 - 1

or

Effective yield to maturity = 0.0800

or

= 0.0800 × 100% = 8.00%

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