Question

Fitzgerald's 25​-year bonds pay 11 percent interest annually on a ​$1,000 par value. If the bonds sell at $895:

What is the​ bond's yield to​ maturity?

What would be the yield to maturity if the bonds paid interest​ semi-annually?

Explain the difference.

Answer 1

Yield to maturity is same in both the cases but the difference is that annual interest paying bond means that bond pays interest once in a year and in case of semi annual interest paying bond ,it pays interest twice in a year i.e, every six months