Question

A one-year zero coupon bond costs \$99.43$99.43 today. Exactly one year from today, it will pay \$100$100. What is the annual yield-to-maturity of the bond? (I.e., what is the discount rate one needs to use to get the price of the bond given the future cash flow of \$100$100 in one year?) *Make sure to input all percentage answers as numeric values without symbols, and use four decimal places of precision. For example, if the answer is 6%, then enter 0.0600.

Answer 1

Answer:

0.00573

Explanation:

Cost of the bond today = $99.43

Value of bond at end of year = $100

Difference = $100 - $99.43 = $0.57

This $0.57 represents earnings on such bond value, that is yield on the bond.

Thus, yearly yield = $0.57/$99.43 = 0.00573

This value represents the discount rate of 1 year on $100 that is for which present value $99.43.

Final Answer

0.00573