We need to solve problem 3 from the image. The problem states: You just bought a 5-year zero coupon bond with a $1,000 face value for $735.67. What is the yield to maturity of this bond?

1. Problem Description

We need to solve problem 3 from the image. The problem states: You just bought a 5-year zero coupon bond with a $1,000 face value for$735.

6

7. What is the yield to maturity of this bond?

2. Solution Steps

The formula for the present value of a zero-coupon bond is:

$PV = \frac{FV}{(1+r)^n}$

where:

$PV$ = Present Value of the bond

$FV$ = Face Value of the bond

$r$ = Yield to Maturity (YTM)

$n$ = number of years to maturity

We are given:

$PV =$735.67$

$FV =$1,000$

$n = 5$ years

We need to solve for $r$.

$735.67 = \frac{1000}{(1+r)^5}$

$(1+r)^5 = \frac{1000}{735.67}$

$(1+r)^5 = 1.35937$

$1+r = (1.35937)^{\frac{1}{5}}$

$1+r = 1.0633$

$r = 1.0633 - 1$

$r = 0.0633$

$r = 6.33\%$

3. Final Answer

The yield to maturity of the bond is 6.33%.

The answer is B.