Question

There is a bond that has a quoted price of 95.859 and a par value of $2,000. The coupon rate is 6.57 percent and the bond matures in 15 years. If the bond makes semiannual coupon payments, what is the effective annual interest rate?

7.14

3.65

3.51

6.43

Answer 1

n = 30
Par value				2000
Price (2000*95.859%)				1917.18
Semi annual interest (2000*6.57%*6/12)				65.7
Annuity PVF for 30 periods				18.36902
PVF fr 30th period at				0.355247
Present value of interest				1206.845
Present value of maturity value				710.494
Price of bonds				1917.339
Semi annual interest = 3.51%
Annual effect Interestt = (1.0351)^2 - 1 = 7.14%
Answer is 7.14%