Suppose that we are solving for a bond\'s yield-to-maturity and, after putting i

Question

Suppose that we are solving for a bond's yield-to-maturity and, after putting in the correct information into our        financial calculator, it displays 4.5%. Note that this bond pays a semi-annual coupon payment. In reality, the            bond's annual (or effective) yield-to-maturity is equal to ________ whereas financial publications, such as the         Financial Times or the Wall-Street Journal would report the annual yield-to-maturity as ________.

4.50%, 9.00%

4.50%, 9.20%

9.00%, 9.20%

9.20%, 9.00%

4.50%, 9.00%

4.50%, 9.20%

9.00%, 9.20%

9.20%, 9.00%

Explanation / Answer

Bond's annual (or effective) yield-to-maturity = (1+ semi annual YTM)^2 -1

Bond's annual (or effective) yield-to-maturity = (1+4.5%)^2 - 1

Bond's annual (or effective) yield-to-maturity = 9.20%

Wall-Street Journal would report the annual yield-to-maturity = 4.50%*2

Wall-Street Journal would report the annual yield-to-maturity = 9%

Answer

d) 9.20%, 9.00%

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