Revision as of 21:06, 19 November 2023 by Admin (Created page with "Bond A and Bond B are each five-year 1000 face amount bonds. In addition: #Bond A has an annual coupon rate of 5% paid semiannually. #Bond B has an annual coupon rate of 3% paid annually. #The price of Bond B is 100 less than the price of Bond A. #The annual effective yield rate for Bond A is 4%. Calculate the annual effective yield rate for Bond B. <ul class="mw-excansopts"><li>4.15%</li><li>4.20%</li><li>4.25%</li><li>4.30%</li><li>4.35%</li></ul> {{soacopyright |...")
ABy Admin
Nov 19'23
Exercise
Bond A and Bond B are each five-year 1000 face amount bonds. In addition:
- Bond A has an annual coupon rate of 5% paid semiannually.
- Bond B has an annual coupon rate of 3% paid annually.
- The price of Bond B is 100 less than the price of Bond A.
- The annual effective yield rate for Bond A is 4%.
Calculate the annual effective yield rate for Bond B.
- 4.15%
- 4.20%
- 4.25%
- 4.30%
- 4.35%
Copyright 2023 . The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.
ABy Admin
Nov 19'23
Solution: B
Using the BA II Plus calculator:
[[math]]
\begin{aligned}
& 1.04=\left(1+\frac{i^{(2)}}{2}\right)^2 \\
& \frac{i^{(2)}}{2}=0.019804 \\
& P_A=25 a_{\overline{100}|.019804}+1000 v^{10} \\
& P_A=1046.72 \\
& 1046.72-100=30 a_{\overline{5} \mid j}+1000 v_j^5 \\
& j=4.2036 \%
\end{aligned}
[[/math]]
Copyright 2023 . The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.