Answer:
5.19 ( D )
Explanation:
A zero-coupon bond is a bond traded/issued to the investor at a discounted price i.e a price lower than the actual face value of the bond. this type of bond dose not attract periodic interest payments rather at the time of maturity the initial face value of the bond is paid to the investor.
The value of a Zero-coupon bond can be calculated as
value of zero - coupon bond = [tex]\frac{F}{( 1 + r )^{t} }[/tex]
F = face value
r = yield
t = time
But the yield to maturity can also be calculated using this formula
r = [tex](\frac{F}{Cp} )^{\frac{1}{T}-1 }[/tex]
F = face value of the bond ( $1000 )
Cp = current price ( $468 )
T = time to maturity ( 15 )
therefore yield = [tex](\frac{1000}{468} )^{\frac{1}{15}-1 }[/tex]
= 2.13675[tex]2^{\frac{1}{15 }-1 }[/tex]
= 0.05186 = 5.186
i.e the yield to maturity is closest to 5.19 ( D )
