Consider a 2-year $2500 par value bond that pays semi-annual coupons at a rate of c()...
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Consider a 2-year $2500 par value bond that pays semi-annual coupons at a rate of c(²) = 7%. Suppose that the bond was purchased for $2598.20. (a) Use the method of averages to approximate the effective yield rate compounded semi-annually. State the result as a percent to 1 decimal place. y(²) ≈ (b) Complete the chart below by performing 2 iterations of the bisection method to approximate the effective yield rate compounded semi-annually. [Note: For the initial interval [a(0), b(0)] use the percentage result y(2) in part (a) as follows: a(0) = y(2) - 0.5 and b(0) = y(2) +0.5.] n O 1 2 % compounded semi-annually a(n) (as a %) b(n) (as a %) c(n) (as a %) P(c(n))-2598.20 (6 decimals) (c) Use the last line in the table above to find the bracket [a(3), b(3)] and the midpoint c(3) to approximate the effective yield rate compounded semi-annually. State the final result as a percent to 4 decimal places. (2) c(3) = % compounded semi-annually Consider a 2-year $2500 par value bond that pays semi-annual coupons at a rate of c(²) = 7%. Suppose that the bond was purchased for $2598.20. (a) Use the method of averages to approximate the effective yield rate compounded semi-annually. State the result as a percent to 1 decimal place. y(²) ≈ (b) Complete the chart below by performing 2 iterations of the bisection method to approximate the effective yield rate compounded semi-annually. [Note: For the initial interval [a(0), b(0)] use the percentage result y(2) in part (a) as follows: a(0) = y(2) - 0.5 and b(0) = y(2) +0.5.] n O 1 2 % compounded semi-annually a(n) (as a %) b(n) (as a %) c(n) (as a %) P(c(n))-2598.20 (6 decimals) (c) Use the last line in the table above to find the bracket [a(3), b(3)] and the midpoint c(3) to approximate the effective yield rate compounded semi-annually. State the final result as a percent to 4 decimal places. (2) c(3) = % compounded semi-annually
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To solve part a of the question we can use the method of averages to approximate the effective yield rate We have a 2year 2500 par value bond that pays semiannual coupons at a rate of c2 7 The bond wa... View the full answer
Related Book For
Accounting Volume 2
ISBN: 978-0176509743
2nd Canadian edition
Authors: James Reeve, Jonathan Duchac, Sheila Elworthy, Carl S. Warren
Posted Date:
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