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1 April, 03:55

A 10-year (zero-coupon) Treasury bill with face value of $100 per share is selling at $70.89 per share. There is a 10-year corporate bond with a 5% coupon rate and face value of $100 per share. The coupon payment is every 12 months. The price of the bond is $96.23 per share. The 10-year, zero coupon Treasury bills are selling at $70.89. What is the bond's yield to maturity?

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  1. 1 April, 04:05
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    3.5%

    Explanation:

    the yield to maturity of a zero coupon bond is calculated using the following formula:

    YTM = (face value / current market value) ¹/ⁿ - 1

    YTM = ($100 / $70.89) ¹/¹⁰ - 1 = 3.5%

    the way you can check if your calculations were correct is to find the future value of the bond using the YTM = $70.89 x (1 + 3.5) ¹⁰ = $99.997 ≈ $100
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