Questions
MSB-250-300-002 Topic 6 Quiz
Single choice
A zero-coupon bond is currently priced at $456, has a face value of $1,000, and matures in 10 years. What is the yield to maturity of this bond?
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Step-by-Step Analysis
The question asks for the yield to maturity of a zero-coupon bond with given price, face value, and time to maturity, but no answer options are provided to analyze.
First, note the essential relationship for a zero-coupon bond: P = F / (1 + y)^n, where P is price, F is face value, y is yield t......Login to view full explanationLog in for full answers
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Similar Questions
What is the cost of bond?
A bond’s yield to maturity represents the investor’s realized return for any holding period, regardless of whether the bond is held to maturity.
A bond with a coupon rate of 8% will also have a yield to maturity of 8%.
Question at position 10 (6 marks, difficulty level: Medium) The Dunley Corp. plans to issue one-year zero-coupon bonds. It believes the bonds will have a BBB rating, and the average debt beta for BBB rating is 0.12. Suppose AAA bonds with the same maturity have a 2.5% yield. If the market risk premium is 5%, use the annual default rates by debt rating here and calculate the yield to maturity of Dunley's one-year bond, assuming an expected 70% loss rate in the event of default during average economic times. [table] Rating: | AAA | AA | A | BBB | BB | B | CCC | CC-C Default Rate: | | | | | | | | Average | 0.0% | 0.1% | 0.2% | 0.5% | 2.2% | 5.5% | 12.2% | 14.1% In Recessions | 0.0% | 1.0% | 3.0% | 3.0% | 8.0% | 16.0% | 48.0% | 79.0% [/table] 5.070%2.900%3.450%4.065%
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