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28 May, 08:59

What is the EAY of a semi-annual coupon bond with a BEY of 5.000%? 2.500% 4.939% 5.000% 5.063% 5.245%

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  1. 28 May, 11:31
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    BEY (r) = 5%

    No of times coupon is paid in a year (m) = 2

    EAY = (1 + r/m) m - 1

    EAY = (1 + 0.05/2) 2 - 1

    EAY = (1 + 0.025) 2 - 1

    EAY = 0.05063 = 5.063%

    The correct answer is D

    Explanation:

    EAY of a semi-annual coupon equals 1 plus annual yield divided by 2 raised to power 2. There is need to divide the annual coupon rate by 2 since coupon is paid twice in a year on semi-annual coupon bond.
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