Effective annual yield: 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?

Question

Quizplus · Accepted Answer

The effective annual yield (EAY) can be calculated using the formula: EAY = (1 + periodic rate)^n - 1, where the periodic rate is 6.4%/2 = 3.2% or 0.032, and n is the number of compounding periods per year, which is 2. So, EAY = (1 + 0.032)^2 - 1 = 0.065024 or 6.50%.

Effective Annual Yield: Suppose an Investor Earned a Semiannual Yield