Consider a $2500 par value bond that pays 6 semi-annual coupons at a nominal rate of...

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Consider a $2500 par value bond that pays 6 semi-annual coupons at a nominal rate of 4% compounded semi- annually. Suppose that the bond was purchased for $2460.20. (a) Use the method of averages to approximate the effective yield rate compounded semi-annually. State the final result as a percent to 4 decimal places. Jx(2) % compounded semi-annually (b) Evaluate each of the following using the rounded result from part (a): Price using the Method of Averages yield = $ Rate of Change of Price (to 2 decimals) using the Method of Averages yield = $ change [Hint: Differentiate the bond price w.r.t. the yield rate y(2).] (c) Use the results in parts (a) and (b) to complete 1 iteration of Newton's method to approximate the effective yield rate compounded semi-annually. State the final result as a percent to 4 decimal places. J(2) % compounded semi-annually per % Consider a $2500 par value bond that pays 6 semi-annual coupons at a nominal rate of 4% compounded semi- annually. Suppose that the bond was purchased for $2460.20. (a) Use the method of averages to approximate the effective yield rate compounded semi-annually. State the final result as a percent to 4 decimal places. Jx(2) % compounded semi-annually (b) Evaluate each of the following using the rounded result from part (a): Price using the Method of Averages yield = $ Rate of Change of Price (to 2 decimals) using the Method of Averages yield = $ change [Hint: Differentiate the bond price w.r.t. the yield rate y(2).] (c) Use the results in parts (a) and (b) to complete 1 iteration of Newton's method to approximate the effective yield rate compounded semi-annually. State the final result as a percent to 4 decimal places. J(2) % compounded semi-annually per %

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ANSWER a The method of averages approximates the effective yield rate compounded semiannually by tak... View the full answer