Question

What is the effective annual yield (EAY) of the bond below? Please use the following Apple bond quote on Bloomberg as a reference:

a) Insufficient information provided.
b) EAY = (1 + Annual Interest Rate)^Number of Compounding Periods - 1
c) EAY = Annual Interest Rate / Number of Compounding Periods
d) EAY = Annual Interest Rate * Number of Compounding Periods

Answer 1

The effective annual yield (EAY) of the bond cannot be determined with the given information.

Step-by-step explanation:

The effective annual yield (EAY) of a bond can be calculated using the formula: EAY = (1 + Annual Interest Rate)^Number of Compounding Periods - 1. In the given scenario, the bond quote on Bloomberg mentions that the yield on the bond is 12%. However, this yield refers to the total return, which includes both interest payments and capital gains. The formula used in the quote to calculate the yield is not accurate for finding the effective annual yield. Therefore, the answer to the question is option a) Insufficient information provided.