A bond with a coupon rate of 532 percent and semiannual coup

A bond with a coupon rate of 5.32 percent and semiannual coupon payments matures in 16 years.T he YTM is 6.49 percent. What is the effective annual yi 6.49% 0 5.32% 0 5.39% 6.86% 0 6.60%

Solution

5.39% ,

Effective annual yield =[1+ interest rate / number of compounding periods ] ^{number of compounding periods} - 1

= [1+5.32%/2] ^{2 semi annual} - 1

= [1+ 0.0266]² - 1

= [1.0266]² - 1

= 1.0539 - 1

= 5.39%