What interest rate is implicit in a $1,000 par value zero-coupon bond that matures in 6 years if the current price is $470.

Mathematics

1 answer:

avanturin [10]3 years ago

4 0

Answer:

The formula for calculating the yield to maturity on a zero-coupon bond is:

Yield To Maturity=(Face Value/Current Bond Price)^(1/Years To Maturity)−1

For a $1,000 zero-coupon bond that has six years until maturity, the bond is currently valued at $470, the price at which it could be purchased today. The formula would look as follows: (1000/470)^(1/6)-1. When solved, this equation produces a value of 0.134097, which would be rounded and listed as a yield of 13.41%.

Step-by-step explanation:

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