Answer:
7.65%
Step-by-step explanation:
Calculation for Mary effective annual yield (EAY)
The first step is to find the Semiannual coupon payment using this formula
Semiannual coupon payment=(Par value×Coupon rate percentage/2)
Let plug in the formula
Semiannual coupon payment =($1,000 × 8%) ÷2
Semiannual coupon payment= $80 ÷ 2 = $40
Second step is to find The total number of compounding period will be 20 years bond × The number of the compounding period er year which is 2
Hence,
The total number of compounding period will= 2 periods per year × 20 years = 40 periods.
Third step is to use the financial calculator which calculated the rate as 3.76% which means that:
Semiannual yield will be :3.76%
Therefore the Annual yield will be calculatedas = 3.76% ×2
Annual yield= 7.51%
The last step is to find the effective annual yield (EAY) using this formula
EAY = [1+(Quoted interest rate / m]m -1
Let plug in the formula
EAY = [1+(0.0751÷2)]2 -1
EAY= 7.65%.
Therefore the effective annual yield (EAY) will be 7.65%