what is the price of a 25-year, zero coupon bond paying $1,000 at maturity, assuming semiannual compounding, if the ytm is: (do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
Yield to maturity (YTM) is the total rate of return that a bond will have earned when it pays all interest and the principal due.
How to Calculate Yield to Maturity of a Zero-Coupon Bond
Yield to maturity (YTM) is a crucial indicator used in the bond market that reflects the overall rate of return anticipated from a bond once it has paid all of its future interest payments and has repaid the original principle sum.
The difference between YTM calculations and bonds with a coupon rate is that zero-coupon bonds (z-bonds) do not have recurring interest payments.
Yield to maturity is an important factor to take into account because z-bonds are a popular type of debt issuance by several institutions, including some U.S. Treasury securities.
Z-bonds are usually sold in the market at a discount to their face value before maturing, so they don't have to be redeemed for coupons.
Here, we examine how to calculate a bond's YTM when the bond does not accrue interest as usual.
