Assume a zero-coupon bond that sells for $333 will mature in 20 years at $1,550.

Question

Assume a zero-coupon bond that sells for $333 will mature in 20 years at $1,550. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.

A What is the effective yield to maturity? (Assume annual compounding. Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Effective yeild to maturity %?

Appendix B Present value of $1,PV, PV=FV Percent Period Period 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833 0.800 0.769 0.741 0.783 0.769 0.756 0.743 0.731 0.718 0.706 0.694 0.640 0.592 0.549 0.510 0.444 0.693 0.675 0.658 0.641 0.624 0.609 0.593 0.579 0.512 0455 0.406 0.364 0.296 0.613 0.592 0.572 0.552 0.534 0.515 0.499 0.482 0.410 0350 0.301 0.543 0.519 0.497 0.476 0.456 0.437 0.419 0.402 0.328 0.269 0.223 0.186 0.132 0.480 0.456 0.432 0.410 0.390 0.370 0.352 0.335 0.262 0.207 0.165 0.133 0.088 0.425 0.400 0.376 0.354 0.333 0.314 0.296 0.279 0.210 0.159 0.122 0.095 0.059 2 0.333 0.308 0.284 0.263 0.243 0.225 0.209 .194 0.134 0.094 0.067 0.048 0.026 10.261 0.237 0.215 0.195 0.178 0.162 0.148 0.135 0.086 0.056 0.037 0.025 0.012 0.231 0.208 0.187 0.168 0.152 0.137 0.124 0.112 0.069 0.043 0.027 0.018 0.008 0.204 0.182 0.163 0.145 0.130 0.116 0.104 0.093 0.055 0.033 0.020 0.013 0.005 140.181 0.160 0.141 0.125 0.111 0.099 0.088 0.078 0.044 0.025 0.015 0.009 0.003 0.160 0.140 0.123 0.108 0.095 0.084 0.074 0.065 0.035 0.020 0.011 0.006 0.002 160.1410.123 0.107 0.093 0.081 0.071 0.062 0.054 0.028 0.015 0.008 0.005 0.002 170.125 0.108 0.093 0.080 0.069 0.060 0.052 0.045 0.023 0.012 0.006 0.003 0.001 B0.111 0.095 0.081 0.069 0.059 0.051 0.044 0.038 0.018 0.009 0.005 0.002 0.001 0.098 0.083 0.070 0.060 0.051 0.043 0.037 0.031 0.014 0.007 0.003 0.002 0 0.087 0.073 0.061 0.051 0.043 0.037 0.031 0.026 0.012 0.005 0.002 0.001 0 250.047 0.038 0.030 0.024 0.020 0.016 0.013 0.010 0.004 0.001 0.001

Explanation / Answer

YTM on a zero coupon bond = (maturity value/current market price)^(1/n) -1

YTM = (1550/333)^(1/20) -1

YTM = 1.0799-1 = .07992 = 8%

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