Question

Three years ago you purchased a 9?% coupon bond that pays semiannual coupon payments for ?$974

What would be your bond equivalent yield if you sold the bond for current market price of ?$1,041??

Your bond equivalent? yield, if you sold the bond for current market? price, is ___ ?%. ?(Round to two decimal? places.)

Answer 1

Face Value = $1,000
Purchase Price = $974
Selling Price = $1,041

Annual Coupon Rate = 9%
Semiannual Coupon Rate = 4.50%
Semiannual Coupon = 4.50%*$1,000
Semiannual Coupon = $45

Period = 3 years
Semiannual Period = 6

Let Semiannual Yield be i%

$974 = $45 * PVIFA(i%, 6) + $1,041 * PVIF(i%, 6)

Using financial calculator:
N = 6
PV = -974
PMT = 45
FV = 1041

I = 5.616%

Semiannual Yield = 5.616%
Annual Yield = 2 * 5.616%
Annual Yield = 11.23%

So, bond equivalent yield is 11.23%