Independent solution

How to solve this Bond Pricing and Yields question

Setup

Setup

From March 2002 through September 2004, five coupons have occurred, leaving fifteen semiannual periods to maturity.

n=20−5=15n=20-5=15

Model

Model

Write the market price immediately after the coupon using half-year yield j.

1100000=40000a15‾∣j+1000000(1+j)−151100000=40000a_{\overline{15}|j}+1000000(1+j)^{-15}

Compute

Compute

The half-year yield root is 3.153035%, so the nominal annual quote is 6.306069%.

i(2)=2j=0.0630606941i^{(2)}=2j=0.0630606941

Answer

Answer

The nominal annual yield is approximately 6.3%, selecting choice C.

i(2)≈6.3%(C)\boxed{i^{(2)}\approx6.3\%\quad\text{(C)}}

Calculator reproduction

BA II Plus keystrokes

Check END/BGN, period, sign, TVM, and cash-flow setup

  1. 2ND · CLR TVM · 15 · N · 1100000 · +/- · PV · 40000 · PMT · 1000000 · FV · CPT · I/YI/Y = 3.1530Double the half-year percent result.