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CFA Level 1
Fixed Income

Yield to Maturity of Zero-Coupon Bond

Medium Fixed Income Valuation Discounted Cash Flow

Consider a 5-year zero-coupon bond with a face value of $1,000 that is currently priced at $700. The bond pays no interest during its life and matures at the end of the 5 years, at which point the investor will receive the face value. Using the concept of discounted cash flows, what is the yield to maturity (YTM) of this bond?

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