Question

Three years ago you purchased a 11% coupon bond that pays semiannual coupon payments for ​$982. What would be your bond equivalent yield if you sold the bond for current market price of ​$​1056?

Your bond equivalent​ yield, if you sold the bond for the current market​ price, is ___​%.

Answer 1

The Bond Equivalent Yield (BEY) is a measure used to compare the annual yield between bonds with different maturities and coupon payment frequencies. The formula for BEY is:

BEY = (Face Value - Purchase Price) / Purchase Price * (365 / Days to Maturity)

In this case, the face value is the current market price of the bond ($1056), the purchase price is the price you paid for the bond three years ago ($982), and the days to maturity is the number of days from the purchase date to the present date. Since the bond was purchased three years ago, the days to maturity would be 3 years * 365 days/year = 1095 days.

Substituting these values into the formula gives:

BEY = ($1056 - $982) / $982 * (365 / 1095)

Calculating this will give the bond equivalent yield as a percentage. Please note that this calculation assumes that the bond was held for exactly three years and that the bond's price did not change during this time. In reality, the price of a bond can fluctuate due to changes in interest rates, the issuer's creditworthiness, and other factors.