The bond equivalent YTM = 8.36% and Effective annual YTM = 8.53%
Available inputs: n = 40, FV = 1000, PV = –950, PMT = 40.
The yield to maturity on a semi-annual basis =
Yield To Maturity = (Face Value/Current Bond Price)^(1/Years To Maturity)−1
= (1000 / -950) )^(1/40)−1
= 4.26%.
This implies a bond equivalent yield to maturity of: 4.26% x 2 = 8.52%
Effective annual yield to maturity i = [1 + (r/n)]n – 1
(1.0426)2 – 1 = 0.0870 = 8.36%
Since the bond is selling at par, the yield to maturity on a semi-annual basis is the same as the semi-annual coupon, 4%.
The bond equivalent yield to maturity is 4%.
Effective annual yield to maturity i = [1 + (r/n)]n – 1
= (1.04)2 – 1 = 0.0816 = 8.53%
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