Question

you will pay 2,318.63 for an n-year 2,000 par-value bond with a coupon rate of 10% compounded semiannually or pay 2,531.05 for an n-year 2,000 par-value bond with a coupon rate of 11% compounded semiannually. assuming that you get the same yield on the two bonds, find the nominal annual yield rate (compounded semiannually) and n.

Answer 1

To find the nominal annual yield rate (compounded semiannually) and n, you can set up an equation using the formula for present value of a bond.

Step-by-step explanation:

To find the nominal annual yield rate (compounded semiannually) and n, we can set up an equation using the formula for present value of a bond. Let's consider the first bond with a coupon rate of 10% compounded semiannually:

The present value of the bond can be calculated using the formula:

PV = C * (1 - (1 + r)^(-n))/(r) + F * (1 + r)^(-n)

Where:

• PV = Present value of the bond
• C = Coupon payment
• r = Nominal annual yield rate (compounded semiannually)
• n = Number of periods (in this case, number of years)
• F = Face value of the bond

We can substitute the given values into the equation:

2318.63 = 2000 * (1 - (1 + 0.05)^(-2))/(0.05) + 2000 * (1 + 0.05)^(-2)

Solving this equation will give us the nominal annual yield rate (compounded semiannually) and n.