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.

Transcribed Image Text:

$1,000 (1 + R) ¹0 $508.35