Anonymous
Apr 11
ABC issues a 5 year pure discount bond with face value of 500000 for 300000. Determine the bonds yield to maturity??
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Apr 11
To calculate the yield to maturity (YTM) of a pure discount bond, we can use the following formula:
YTM = (Face Value / Price)^(1/n) - 1
Where:
Face Value = $500,000
Price = $300,000
n = number of years until maturity = 5
Plugging in the values:
YTM = ($500,000 / $300,000)^(1/5) - 1
YTM = (1.6667)^(0.2) - 1
YTM = 1.1487 - 1
YTM = 0.1487 or 14.87%
Therefore, the yield to maturity of the bond is 14.87%.
YTM = (Face Value / Price)^(1/n) - 1
Where:
Face Value = $500,000
Price = $300,000
n = number of years until maturity = 5
Plugging in the values:
YTM = ($500,000 / $300,000)^(1/5) - 1
YTM = (1.6667)^(0.2) - 1
YTM = 1.1487 - 1
YTM = 0.1487 or 14.87%
Therefore, the yield to maturity of the bond is 14.87%.
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