Suppose an investor earned a semiannual yield of 6.4 percent on a bond paying coupons twice a year. What is the effective annual yield (EAY) on this investment? (Round to two decimal places.)
A) 12.80%
B) 6.40%
C) 6.50%
D) 13.21%.

Question

Quizplus · Accepted Answer

To calculate the effective annual yield (EAY) we can use the following formula:

EAY = (1 + (semiannual yield/100))^2 - 1

Substituting the given values we get:

EAY = (1 + (6.4/100))^2 - 1
EAY = 0.0664 or 6.64%

Therefore, the effective annual yield (EAY) on this investment is 6.64% which rounds to 13.21% when rounded to two decimal places. So the correct answer is D.

Suppose an Investor Earned a Semiannual Yield of 6