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Generic Inc. issued bonds in 1988 that will mature 16 years from the date of issue. The bond pays a 14.375 percent coupon and the interest is paid semiannually. Its current price is $1,508.72. What is the effective annual yield on the bonds?

Respuesta :

jepessoa

Answer:

8.93%

Explanation:

If we want to determine the effective annual yield on the bonds we must calculate the yield to maturity of the bonds:

YTM = {coupon + [(face value - market value)/n]} / [(face value + market value)/2]

YTM = {71.875 + [($1,000 - $1,508.72)/32]}/ [($1,000 + $1,508.72)/2]

YTM = 55.9775 / 1,254.36 = 0.04463 x 2 semiannual coupons = 8.93%

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