What Would the Yield to Maturity Be on a Four-Year

question 34

Multiple Choice

What would the yield to maturity be on a four-year zero-coupon bond purchased today?

• A)5.75%
• B)6.30%
• C)5.65%
• D)5.25%

---

Definitions:

Coupon Rate

The yearly interest rate paid on a bond, shown as a percentage of its nominal value.

Interest Tax Shield

The reduction in income taxes that results from taking allowable deductions for interest expense.

Tax Shield

The reduction in income taxes that results from taking an allowable deduction from taxable income, such as mortgage interest or depreciation.

Coupon Rate

Yearly rate of interest paid on a bond, expressed in terms of percentage of its face value.