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31 March, 03:44

Suppose that a 1-year zero-coupon bond with face value $100 currently sells at $90.37, while a 2-year zero sells at $77.15. You are considering the purchase of a 2-year-maturity bond making annual coupon payments. The face value of the bond is $100, and the coupon rate is 9% per year. a. What is the yield to maturity of the 2-year zero? (Do not round intermediate calculations. Round your answers to 3 decimal places.)

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  1. 31 March, 04:05
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    The yield to maturity on the 2 year-zero coupon bond is 13.85% as computed in the explanation section below

    Explanation:

    The yield to maturity on the 2-year-zero coupon bond can be computed using the rate formula in excel as shown thus:

    =rate (nper, pmt,-pv, fv)

    nper is the number of annual coupon payments which is 2

    pmt is the amount of annual coupon payment which is zero since it is a zero coupon bond

    pv is the current price of the bond which is $77.15

    fv is the face value of the bond which is $100

    =rate (2,0,-77.15,100) = 13.85%
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Home » Business » Suppose that a 1-year zero-coupon bond with face value $100 currently sells at $90.37, while a 2-year zero sells at $77.15. You are considering the purchase of a 2-year-maturity bond making annual coupon payments.
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