A Ten-Year, Zero-Coupon Bond with a Yield to Maturity of 4

question 27

Multiple Choice

A ten-year, zero-coupon bond with a yield to maturity of 4% has a face value of $1000. An investor purchases the bond when it is initially traded, and then sells it four years later. What is the rate of return of this investment, assuming the yield to maturity does not change?

• A) 3.20%
• B) 2.40%
• C) 4.00%
• D) 2.00%

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Definitions:

Linear Equation

An equation in which the variable is raised only to the first power.

Linear Equations

Equations between two variables that produce a straight line when graphed on a coordinate plane.

Exponential Growth

A growth process where the quantity increases at a rate proportional to its current value, resulting in a rapid rise over time.

Linear Equations

Equations between two variables that produce a straight line when plotted on a graph.