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18 May, 10:12

g suppose that a commercial bank wants to buy treasury bills. these instruments pay $500 in one year and are currently selling for 5012. what is the the yield to maturity

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  1. 18 May, 10:27
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    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%
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