Kevin Smart invested in a state government bond that promised an annual yield of 6.7 percent.The bond pays coupons twice a year and the face value is $1,000.What is the effective annual yield (EAY)on this investment?

Question

Quizplus · Accepted Answer

The effective annual yield (EAY) can be calculated using the formula: EAY = (1 + (nominal rate / number of periods))^number of periods - 1. Here, the nominal rate is 6.7%, and the bond pays semi-annually, so the number of periods is 2. EAY = (1 + 0.067/2)^2 - 1 = 0.068 or 6.8%.

Kevin Smart Invested in a State Government Bond That Promised