Answer:
Bond Equivalent Yield = 8.52%
Effective annual Yield Rate = 8.71%
Explanation:
Since the bond price is not given, I will assume a bond price of $950, substitute it with whatever you're given
For starters, we start by finding the yield to maturity or YTM. To find the yield to maturity, we will have to put the following values in the financial calculator:
N = 20 * 2 = 40
PV = -950;
PMT = [8%/2]*1000 = 40;
FV = 1000;
Press CPT, then I/Y, which gives us 4.26
This means that the Periodic Rate = 4.26%
Next, we compite the Bond equivalent yield, which is
Bond equivalent yield = Periodic Rate * No. of compounding periods in a year
BEY = 4.26% * 2 = 8.52%
And finally, the effective annual yield rate is
effective annual yield rate = [1 + Periodic Rate]^(No. of compounding periods in a year) - 1
= [1 + 0.0426]² - 1
= 1.0871 - 1
= 0.0871, or 8.71%
