Question

A bond with a coupon rate of 5.16 percent and semiannual coupon payments matures in 12 years. The YTM is 6.37 percent. What is the effective annual yield?

Answer 1

6.47%

Step-by-step explanation:

The computation of effective annual yield is shown below:-

Annual YTM = 6.37%

Semiannual YTM = 6.37% ÷ 2

= 3.185%

Effective Annual Yield = (1 + Semiannual YTM)^2 - 1

= (1 + 0.03185)^2 - 1

= 1.03185^2 - 1

= 1.0647 - 1

= 0.0647

or

= 6.47%

Hence, the effective annual yield is 6.47% i.e come after applying the above formula