15-year maturity bond with par value of $1,000 makes semiannual coupon payments at a coupon rate of 11%. Find the bond quivalent and effective annual yield to maturity of the bond for the following bond prices. (Round your answers to 2 decimal -laces.) a. $ b. $ $ C. Bond Prices X Answer is complete but not entirely correct. Bond Equivalent Annual Yield to Maturity 7.42 X % 11.00 % 5.10 X % 960 1,000 1,060 Effective Annual Yield to Maturity 7.42 X % 11.00% 5.10 X %
15-year maturity bond with par value of $1,000 makes semiannual coupon payments at a coupon rate of 11%. Find the bond quivalent and effective annual yield to maturity of the bond for the following bond prices. (Round your answers to 2 decimal -laces.) a. $ b. $ $ C. Bond Prices X Answer is complete but not entirely correct. Bond Equivalent Annual Yield to Maturity 7.42 X % 11.00 % 5.10 X % 960 1,000 1,060 Effective Annual Yield to Maturity 7.42 X % 11.00% 5.10 X %
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:### Bond Yield to Maturity Calculation
A 15-year maturity bond with a par value of $1,000 makes semiannual coupon payments at a coupon rate of 11%. Find the bond equivalent and effective annual yield to maturity of the bond for the following bond prices. (Round your answers to 2 decimal places.)
#### Answer Status:
❌ Answer is complete but not entirely correct.
| Bond Prices | Bond Equivalent Annual Yield to Maturity | Effective Annual Yield to Maturity |
|-------------|-----------------------------------------|-----------------------------------|
| a. $960 | 7.42% ❌ | 7.42% ❌ |
| b. $1,000 | 11.00% ✅ | 11.00% ❌ |
| c. $1,060 | 5.10% ❌ | 5.10% ❌ |
In this table:
- Columns list bond prices and corresponding yields (Bond Equivalent Annual Yield to Maturity and Effective Annual Yield to Maturity).
- A red "X" indicates an incorrect value.
- A green check mark "✔" signifies a correct value.
*Note:* The correct values should represent the precise calculations of bond equivalent and effective annual yield to maturity based on the bond prices provided.
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Transcribed Image Text:**Problem Statement:**
A 15-year maturity bond with a par value of $1,000 makes semiannual coupon payments at a coupon rate of 11%. Find the bond equivalent and effective annual yield to maturity of the bond for the following bond prices.
*(Round your answers to 2 decimal places.)*
**Answer is complete but not entirely correct.**
| Bond Prices | Bond Equivalent Annual Yield to Maturity | Effective Annual Yield to Maturity |
|-------------|----------------------------------------|------------------------------------|
| a. $960 | 11.82% ❌ | 12.17% ❌ |
| b. $1,000 | 11.00% ❌ | 11.30% ✅ |
| c. $1,060 | 9.85% ❌ | 10.09% ❌ |
**Explanation:**
Each row in the table represents different bond prices ($960, $1,000, $1,060) and their corresponding calculated bond equivalent annual yield to maturity and effective annual yield to maturity, which are highlighted with check marks and cross marks indicating correct and incorrect values respectively. Note that only the effective annual yield to maturity for the $1,000 bond price is correct at 11.30%.
The table helps illustrate the relationship between bond prices and their associated yields, considering semiannual coupon payments. The goal is to correctly compute and understand the financial metrics associated with different bond pricing scenarios.
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Transcribed Image Text:### Bond Equivalent and Effective Annual Yield to Maturity
A 15-year maturity bond with a par value of $1,000 makes semiannual coupon payments at a coupon rate of 11%. Find the bond equivalent and effective annual yield to maturity of the bond for the following bond prices. (Round your answers to 2 decimal places.)
**Note:** The answer provided is complete but not entirely correct.
| Bond Prices | Bond Equivalent Annual Yield to Maturity | Effective Annual Yield to Maturity |
|:-----------:|:---------------------------------------:|:----------------------------------:|
| a. $960 | 11.82% ❌ | 12.17% ❌ |
| b. $1,000 | 11.00% ❌ | 11.30% |
| c. $1,060 | 9.85% ❌ | 10.09% |
**Explanation:**
- The bond equivalent annual yield to maturity refers to an annualized rate of return on a bond, but it does not take into account compounding within the year.
- The effective annual yield to maturity includes the effect of intra-year compounding.
**Corrections Notes:**
The values provided in the table for the bond equivalent annual yield to maturity (column 2) and the effective annual yield to maturity (column 3) are marked incorrect where appropriate, indicating potential calculation errors or rounding inaccuracies.
By eliminating these errors, students should be able to accurately compute these critical yield measures for financial analysis and bond investment decisions.
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