. The annual par-coupon rate on a 1-year treasury bond is 5.5%. The par-coupon o
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Question
. The annual par-coupon rate on a 1-year treasury bond is 5.5%. The par-coupon on a 2-year treasury bond is 5.8%. What is the 1-year effective yield on a 2-year zero coupon bond? (a) 5.62 % (b) 5.70 % (c) 5.81 %The answer should be C but I can't figure out how . The annual par-coupon rate on a 1-year treasury bond is 5.5%. The par-coupon on a 2-year treasury bond is 5.8%. What is the 1-year effective yield on a 2-year zero coupon bond? (a) 5.62 % (b) 5.70 % (c) 5.81 %
The answer should be C but I can't figure out how . The annual par-coupon rate on a 1-year treasury bond is 5.5%. The par-coupon on a 2-year treasury bond is 5.8%. What is the 1-year effective yield on a 2-year zero coupon bond? (a) 5.62 % (b) 5.70 % (c) 5.81 %
The answer should be C but I can't figure out how
Explanation / Answer
Solution :
Annual effective yield = [ 1 + R/q ] q - 1
R = rate of interest
q = number of times interest computed in a year
r = [ 1 + 0.058 /2 ] 2 -1
r = 5.88
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