A 5-year, 5% semi-annual coupon payment corporate bond is priced at 104.967 per 100 of par value. The bond's yield-to-maturity, quoted on a semi-annual bond basis, is3.897%. An analyst has been asked to convert to a monthly periodicity. under this con-Version, the yield-to-maturity is closest to:

Question

Quizplus · Accepted Answer

To convert the yield-to-maturity from a semi-annual basis to a monthly basis, we use the following formula:

[(1 + semi-annual yield)^2 -1]^12 - semi-annual yield * 12

Plugging in the given numbers, we get:

[(1 + 0.03897)^2 -1]^12 - 0.03897 * 12 = 0.03913 or 3.913%

Therefore, the closest answer choice is A, 3.87%.

A 5-Year, 5% Semi-Annual Coupon Payment Corporate Bond Is Priced