Component |
Description |
Face Value |
The amount paid to the bondholder at maturity. |
Purchase Price |
The price at which the zero-coupon bond is purchased. |
Years to Maturity |
The number of years until the bond matures. |
Yield to Maturity (YTM) |
The annualized rate of return on the bond if held until maturity. |
Formula |
YTM = [(Face Value / Purchase Price)^(1 / Years to Maturity)] – 1 |
Purpose |
Used to calculate the yield of a zero-coupon bond, helping investors evaluate the bond’s return over its holding period. |