Question

Consider the following yields to maturity on various one-year zero-coupon securities: Security: Treasury AAA Corporate BBB Corporate B Corporate Yield (%): 4.6 4.8 5.6 6.2 The price (expressed as a percentage of the face value) of a one-year, zero-coupon, corporate bond with a BBB rating is closest to:

Answer 1

Answer:

94.70%

Explanation:

The computation of the price expressed as a percentage of the face value is given below:

= Price ÷ Face value × 100

= (Face value ÷ (1 + YTM)) ÷ Face value × 100

= ($1,000 ÷ (1 + 5.6%)) ÷ ($1,000) × 100

= $946.97 ÷ $1,000 × 100

= 94.70%

Hence, the price expressed as a percentage of the face value is 94.70%

Here we assume the face value be $1,000