a). r = [Par Value - Bond Price] / Par Value = [$100,000 - $97,990] / $100,000
= $2,010 / $100,000 = 0.0201, or 2.01%
EAR = [1 + Periodic Rate]No. of compounding periods in a year - 1
= [1 + 0.0201]4 - 1 = 1.0829 - 1 = 0.0829, or 8.29%
b). As the bond is selling at par, ytm is equal to coupon rate.
EAR = [1 + Periodic Rate]No. of compounding periods in a year - 1
= [1 + (0.09/2)]2 - 1 = 1.0920 - 1 = 0.0920, or 9.20%
Calculate the effective annual interest rate for the following: a. A 3-month T-bill selling at $97,990...
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