Compute the yield to maturity of a $100 face value zero-coupon bond that matures in exactly one year and has a current market price of $98.50. (Round your final answer to the nearest hundredth of a percent.)

Yield to maturity is 1.51%

Explanation:

Zero Coupon rate does not offer any coupon payment and it is issued at deep discount value.

Face value = F = $100

Price = P = $98.50

Year to mature = n = 1 year

Yield to maturity = ( F - P ) / n ] / [ (F + P ) / 2 ]

Yield to maturity = ( $100 - $98.5 ) / 1 ] / [ ( $100 + $98.5 ) / 2 ]

Yield to maturity = $1.5 / 99.25

Yield to maturity = 0.0151

Yield to maturity = 1.51%

u = 30

continuing your method

= +

subtract from both sides

= - thus

= -

= ⇒ u = 30

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