Answer:
Part a: For the bond price of $950, the bond equivalent yield is 10.63% while that of effective annual yield is 10.9%.
Part b:For the bond price of $1000, the bond equivalent yield is 10% while that of effective annual yield is 10.25%.
Part c:For the bond price of $1050, the bond equivalent yield is 9.42% while that of effective annual yield is 9.64%.
Explanation:
As the data here is not complete, by finding the complete question online which is attached herewith.
Part a: $950
As per the given data,
- The bond price is $950.
- The coupon rate is 10% of 1000 which is given as $100 annually.
- As the coupon is semi-annual this indicates that each payment is of $50.
- Number of total years is 20.
- The par value is $1000.
So the price for semi-annual coupons is given as
Here
- CF_i is the value of per coupon which is $50 in this case
- Price is $950.
- Par value is $1000.
- n is number of years which is 20.
By applying this formula in
Solving this with the help of a financial calculator yields
Now
Bond Equivalent yield is given as
So the bond equivalent yield is 10.63%.
The effective annual yield is given as
So the effective annual yield is 10.9%
For the bond price of $950, the bond equivalent yield is 10.63% while that of effective annual yield is 10.9%.
Part b: $1000
As per the given data,
- The bond price is $1000.
- The coupon rate is 10% of 1000 which is given as $100 annually.
- As the coupon is semi-annual this indicates that each payment is of $50.
- Number of total years is 20.
- The par value is $1000.
So the price for semi-annual coupons is given as
Here
- CF_i is the value of per coupon which is $50 in this case
- Price is $1000.
- Par value is $1000.
- n is number of years which is 20.
By applying this formula in
Solving this with the help of a financial calculator yields
Now
Bond Equivalent yield is given as
So the bond equivalent yield is 10%.
The effective annual yield is given as
So the effective annual yield is 10.25%
For the bond price of $1000, the bond equivalent yield is 10% while that of effective annual yield is 10.25%.
Part c: $1050
As per the given data,
- The bond price is $1050.
- The coupon rate is 10% of 1000 which is given as $100 annually.
- As the coupon is semi-annual this indicates that each payment is of $50.
- Number of total years is 20.
- The par value is $1000.
So the price for semi-annual coupons is given as
Here
- CF_i is the value of per coupon which is $50 in this case
- Price is $1050.
- Par value is $1000.
- n is number of years which is 20.
By applying this formula in
Solving this with the help of a financial calculator yields
Now
Bond Equivalent yield is given as
So the bond equivalent yield is 9.42%.
The effective annual yield is given as
So the effective annual yield is 9.64%
For the bond price of $1050, the bond equivalent yield is 9.42% while that of effective annual yield is 9.64%.