Answered

A bond with a coupon rate of "5.96" percent and semiannual coupon payments matures in 18 years. The YTM is 6.97 percent. What is the effective annual yield?

Answer :

sadddamkashmiri801

Available Options Are:

(A) 7.38%

(B) 5.96%

(C) 6.05%

(D) 7.09%

(E) 6.97%

Answer:

Effective Annual Yield is 7.09%

Explanation:

The Effective Annual Yield can be calculated as under:

Effective Annual Yield =    (1    +    YTM / n)^n     - 1

Here,

YTM is 6.97%

n is 12/6 for semi annual coupon payments

By putting values, we have:

Effective Annual Yield =    (1   +   6.97% / 2)^2    - 1

Effective Annual Yield = (1.03485)^2  - 1  = 0.0709145 = 7.09%

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