Given the bond described above, if interest were paid semi-annually (rather than annually), and the bond continued to be priced at $850, the resulting effective annual yield to maturity would be $\begin{array}{lc}
\text { Par Value } & \$ 1,000 \
\text { Time to Maturity } & 20 \text { Years } \
\text { Coupon } & 10 \% \text { (paid annually) } \
\text { Current price } & \$ 850 \
\text { Yield to Maturity } & 12 \%
\end{array}$
A) less than 12%.
B) more than 12%.
C) 12%.
D) Cannot be determined.
E) None of the options are correct.

Question

Quizplus · Accepted Answer

When interest is paid semi-annually, the bond's effective annual yield to maturity will be higher than the nominal yield due to compounding effects.

Given the Bond Described Above, If Interest Were Paid Semi-Annually