A six-year 1000 face amount bond has an annual coupon rate of 8% semiannually. The bond currently sells for 911.37.

Calculate the annual effective yield rate.

• 7.29%
• 8.00%
• 9.72%
• 10.00%
• 10.25%

Copyright 2023 . The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.

Solution: E

Using the BAII Plus calculator:

n = 12

PV = 911.37

PMT = -40

FV = -1000

CPT I/Y and you get 5.0% is the half-year rate:

[[math]] {\frac{i^{(2)}}{2}}.\ (1+i)=(1+0.05)^{2};i=0.1025 [[/math]]

Copyright 2023 . The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.