A 2-year $100 par value bond pays 10% monthly coupons is sold at par. Determine its...

A 2-year $100 par value bond pays 10% monthly coupons is sold at par.

Determine its effective annual rate.

Solutions

Expert Solution

Value of bond as of today = $100

Value of bond sold after 2 years = $100

Interest Yield in 2 years = 100*10%*2

= $20

Capitial Yield = 0 , Since bond sold at par.

Hence effective annual rate = Interest yield + capital yield

= 20/(2*100) + 0%

= 10%

jeff jeffy answered 1 year ago

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