Question

The market price of a semi-annual pay bond is $987.58. It has 14.00 years to maturity and a coupon rate of 7.00%. Par value is $1,000. What is the effective annual yield?

Answer 1

7.12%

Step-by-step explanation:

ffective annual yield = (1+i/m)m - 1

i = coupon rate = 7%

m = compounding frequency = 2

Effective annual yield = (1+0.07/2)^2 - 1

Effective annual yield = (1+0.035)^2 - 1

Effective annual yield = (1.035)^2 - 1

Effective annual yield = 1.071225 - 1

Effective annual yield = 0.071225

Effective annual yield = 7.12%