Question

A 10-year maturity bond with par value of $1,000 makes semiannual coupon payments at a coupon rate of 7%. Find the bond equivalent and effective annual yield to maturity of the bond for the following bond prices. (Round your answers to 2 decimal places.) Bond Prices Bond Equivalent Annual Yield to Maturity Effective Annual Yield to Maturity a. b. c. $ $ $ 940 1,000 1,040

Answer 1

Soultono coupon Rate = 7 % OR 0.07 Par value = $1000 No. of years to măturity Bund equivalind yield to matusikę = ? Effective Annual yield to malurile ? semi annnal coupon. Semi Gonnal coupon = $1000 X 0.07 – $35 Calculation of No. of Periods to maturity No.f bestods to matürste= 2* No. of years. -No.of beriochito maternicz 2x10 = 20. -- As bei Question di Demand, (A) Bund' equivalent yield = Semi annnal yield X2 (B) Effective Annual yield = (1 + Semi Annual yiew) 1 . (C) demi Annual yield- Semi Annual : face value- Price (c) Semi Annual yield coupon * + No. 9 Perioof to maturing face value + Price .. .

. (a) Calculation of Bond equivalent annual yield and Effective annual yield to maturity of Bond price is $940) 35 $1000 - $940 Semi Annualyield = $35 + de 20 $1000 +9940 Semiconnnal yield 2 $35 + $650 a $35+$3 998 $1940 $970 $970 Semiannual yield = 0.03918 OR 3.9184) Bond equivalent yields 0.0318 x2 = 0.0636 OR 6.36% BEY=6.36% Effective annual yield> (1+0.03910) 1 (EAY) EAY = 1.0798950724–1 = 0.0799.0R7.99% EAY = 7.99%

(b) Calculation of Band equivalent annual yield and effective annual yield to maturity of Band price is $1000) first of we will comporte semiannual yield. So the value will be but in the formna, 126 semianneal yield2 $35 + $1000 $1000 - $1000 $1000 + $1000 90 Semiannnal yield - $35 +420 $35 -0.035 e $1000 OR 3.5% $2000 है . Now we can eailly calculate the Bey and EAY. Bond equivalent yield 0.035*2 = 0.07 OR 7.00% Bond equivalent yield 7:0090R 0.07 | B6 Elective Amiel yield (1+0.035) = 1 EAY=(1.035)-1 EAYz 1.071225-1 -0.0712255.0.0712 LEAY = 7:12 % 314

. (C) Calculation of Band equivalent annual yield . and effective annual yield to maturity (it Bond Price is $1040) Semiannual yield = $$35 + $1000 – $1040 20 $1000 +$1040 Semiannual yield= $35 + - $35-$2933 $2040 $1020 $1020 Semannnalyield z 0.0324 OR 3.24% OROUBY. Bond equivalent yield = 2 x 0.0324 => 0.0640 (364) 1 BEY = 6,48% , Equivalent Annual yteld = (1 +0.0324)?, EAY = (1.0324).-.1 EAY = 1.0658-1 =) 0.0658 CAY - 0.0650 OR 6.50% MON ਨੇ ਗਿQ $940. B੬੫ 6.361. Tooy. EAY 7.99 4. 7,127. $1000 1. (c) $1040 6.484. 6.58 x