A bond with a coupon rate of 5.88 percent and semiannual coupon payments matures

Question

A bond with a coupon rate of 5.88 percent and semiannual coupon payments matures in 20 years. The YTM is 6.91 percent. What is the effective annual yield?

5.97%

5.88%

7.31%

6.91%

7.03%

An investment had a nominal return of 10.7 percent last year. The inflation rate was 2.4 percent. What was the real return on the investment?

9.01%

8.11%

10.43%

13.36%

7.50%

There are zero coupon bonds outstanding that have a YTM of 5.67 percent and mature in 24 years. The bonds have a par value of $10,000. If we assume semiannual compounding, what is the price of the bonds?

$2,526.45

$2,548.23

$2,613.57

$2,661.70

$2,509.03

Explanation / Answer

1. The YTM is 6.91% anually so semi anually it will be 3.455%

Effective annual yeild- (1+YTM/n)^n-1

= (1.03455)^2-1= 7.03%

2. (1+real rate)= (1+nominal rate)/1+inflation)

=real rate =1.107/1.024-1= 8.11%

3. Bond price= Preset value of bond

= 10000/(1+(0.0567/2))^48

=$2613.57

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