$\begin{array}{cc}
\text { Year } & \text { 1 Year Forward Rate } \
1 & 4.5\% \
2 & 5.2\% \
3 & 5.9\% \
4 & 6.3\% \
5 & 6.8 \% \
6 & 7.0\%
\end{array}$
. What would the yield to maturity be on a four-year zero-coupon bond purchased today?
A) 7.80%
B) 6.30%
C) 5.47%
D) 4.25%
E) None of the options are correct.

Question

Quizplus · Accepted Answer

The yield to maturity (YTM) for a zero-coupon bond is the geometric average of the forward rates. For a four-year bond, the YTM is calculated as $(1.045 \times 1.052 \times 1.059 \times 1.063)^{1/4} - 1$, which equals approximately 5.47%.

What Would the Yield to Maturity Be on a Rate