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Question of the Week – Quantitative Methods

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    • Avatar of AdaptPrepAdaptPrep
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        • Undecided
        30 Jun 2018 at 7:39 pm
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        A bond is selling for 101. It matures in 3 months and pays a coupon of 2 at maturity (in addition to the face of 100). The effective annual yield is closest to:

        • 1.00%
        • 2.50%
        • 4.00%
      • Avatar of AdaptPrepAdaptPrep
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          • Undecided
          04 Jul 2018 at 7:11 am
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          For the effective annual yield, you
          annualize the holding period yield:

          HPY = (P1 – P0 + D1) / P0 = (100 –
          101 + 2) / 101 = 0.99%

          EAY = (1 + HPY)^4 – 1 = 4.02%

          auqmy voted upSusma1 voted up
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