Answer:
YTM = 8%
Explanation:
$100 per year up to 4 years means, each year, the FV = $100.
We know, Zero coupon bond = [Fair Value ÷ [tex](1 + YTM)^{n}[/tex]]
As the 4-year annuity paying the different YTM in the previous three years, 4th year YTM will be -
Bond value = [tex]\frac{100}{1 + 0.6}[/tex] + [tex]\frac{100}{(1+0.07)^2}[/tex] + [tex]\frac{100}{(1+0.08)^3}[/tex] + [tex]\frac{100}{(1+YTM{4})^4}[/tex]
or, $334.57 = $94.3396 + $87.3439 + $79.3832 + [tex]\frac{100}{(1+YTM{4})^4 }[/tex]
or, $334.57 - 261.0667 = [tex]\frac{100}{(1+YTM{4})^4 }[/tex]
or, [tex](1+YTM{4})^4[/tex] = ($100 ÷ $73.50)
or, 1 + YTM = [tex](1.3605)^{\frac{1}{4}}[/tex]
or, YTM = 1.08 - 1
YTM = 0.08 or 8%
