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Calculating the YTM's of default free zero coupon bonds

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The following table summarizes prices of various default- free zero coupon bonds (expressed as a percentage of face value)

Maturity (years) 1. 2. 3. 4. 5
Price (per $100 face value) 94.52 89.68 85.40 81.65 78.35

Plot the zero-coupon yield curve(for the first five years).

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Solution Summary

The solution depicts the steps to estimate the YTM of default free zero coupon bonds.

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YTM for 1 year maturity zero coupon bond=(FV/P)^(1/n)-1=(100/94.42)^(1/1)-1= 5.91%

YTM for 2 year maturity ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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