Homework SourseThe approximate yield to maturity Of a bond is equal to A av
The approximate yield to maturity
Of a bond is equal to
A average return/purchase price
B average return/average price
C (i+m+p)/(m+p)/2
D both b and c
The approximate yield to maturity
Of a bond is equal to
A average return/purchase price
B average return/average price
C (i+m+p)/(m+p)/2
D both b and c
Of a bond is equal to
A average return/purchase price
B average return/average price
C (i+m+p)/(m+p)/2
D both b and c
Solution
Answer is A
approx yield to maturity of a bond is equal to average return / purchase price
For example, let us take a 1 year zero coupon bond with purchase price of 90 and par value of 100
So Present Value = 90
Future Value = 100
Time = 1 year
Future value = Present value * (1+r)^1
100 = 90 *(1+r)^1
r = (100/90)-1 = 11.11%
This is simply the return (100 - 90) / Price (90) =(100-90)/90 = 11.11%
