g suppose that a commercial bank wants to buy treasury bills. these instruments pay $500 in one year and are currently selling f

Question

blondinia [14]

3 years ago

6

g suppose that a commercial bank wants to buy treasury bills. these instruments pay $500 in one year and are currently selling f

or 5012. what is the the yield to maturity

Business

1 answer:

Vinil7 [7] · Answer 1 · 2022-07-27T13:32:44+03:00

Answer:

9.98%

Explanation:

Yield to maturity is the annual rate of return that an investor receives if a bond bond is held until the maturity. It is a long term return which is expressed in annual term.

As per given data

Annual Payment = $500

Current price = $5,012

$500 payment each year for indefinite period of time is a perpetuity, value of perpetuity can be calculated as follow

Current Price = Annual Payment / Yield to maturity

Yield to maturity = Annual Payment / Current Price

Yield to maturity = ( Annual payment / Current price ) x 100

Yield to maturity = ( $500 / $5,012 ) x 100

Yield to maturity = 0.0998 x 100

Yield to maturity = 9.98%