Suppose the Eight- Inch Nails (EIN) Company issues a $1,000 face value, five-year zero coupon bond. The
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Suppose the Eight-
Inch Nails (EIN) Company issues a $1,000 face value, five-year zero coupon bond. The initial price is set at $508.35. What is the yield to maturity using semiannual compounding?
The yield can be expressed as:
The exponent in the denominator is 10 because five years contain 10 semiannual periods. The yield equals 7 percent. Because the yield is expressed as a return per six-month interval, the yield to maturity, expressed as an annual percentage rate, is 14 percent.
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Related Book For
Corporate Finance
ISBN: 9781265533199
13th International Edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe
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