Question

Given the bond described below, if interest were paid semi-annually (rather than annually), and the bond continued to be priced at $850, the resulting effective annual yield to maturity would be:

Answer 1

Answer:

11.62%

Explanation:

The question was missing some parts:

Par Value $1000 Time to Maturity 20 years Coupon 10% paid annually Current Price $850 Yield to Maturity 12%

the approximate yield to maturity (YTM) = {coupon + [(face value - market value) / n]} / [(face value + market value) / 2]

YTM = {50 + [(1,000 - 850) / 40]} / [(1,000 + 850) / 2] = 53.75 / 925 = 0.0581 x 2 (annual rate) = 0.1162 = 11.62%