A zero-coupon bond with a par value of $1000 is sold for $670 and matures in 12 years. The problem asks to calculate the yield to maturity (YTM) of the bond. The answer should be in decimal format, such as 0.0045, without using percentage.

1. Problem Description

A zero-coupon bond with a par value of $1000 is sold for$670 and matures in 12 years. The problem asks to calculate the yield to maturity (YTM) of the bond. The answer should be in decimal format, such as 0.0045, without using percentage.

2. Solution Steps

The yield to maturity (YTM) for a zero-coupon bond can be calculated using the following formula:

$YTM = (\frac{FV}{PV})^{\frac{1}{n}} - 1$

Where:

$FV$ = Face Value (Par Value) = $1000

$PV$ = Present Value (Price) = $670

$n$ = Number of years to maturity = 12

Plugging the values into the formula:

$YTM = (\frac{1000}{670})^{\frac{1}{12}} - 1$

$YTM = (1.492537313)^{\frac{1}{12}} - 1$

$YTM = 1.034409873 - 1$

$YTM = 0.034409873$

Rounding to four decimal places gives us 0.

0

3

4

4.

3. Final Answer

0. 0344