# Annualizing YTM

I have a quick question about the need to annualize YTM rates.  This question came about initially after looking at FINRA’s TRACE system to see how YTM is quoted in practice.  The bond I looked at was HD.GK and bought on the first day of availability for 99.248 with a coupon rate of 5.875 compounded semi-annually for 30 years.  When I used Excel to calculate the YTM I got exactly half of the YTM listed in the system (5.929) and so I had to multiply it by 2 to reannualize it.  It took me a bit to be “convinced” of all of this but it led to two questions:

Does this mean that YTM is quoted as a nominal interest rate compounded semiannually (or in a general case compounded by the number of coupons given by the bond in a year) in practice?

When you have a nominal interest rate if you divide it by the number of compounding periods per year do you get the effective interest for that specific period?  For instance if you have a 5% nominal interest rate compounded semiannually then is the effective semiannual interest rate is 2.5%.

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DYR wrote:
Does this mean that YTM is quoted as a nominal interest rate compounded semiannually (or in a general case compounded by the number of coupons given by the bond in a year) in practice?

The YTM on bonds is commonly quoted as a bond equivalent yield (BEY) which is twice the effective semiannual yield.

DYR wrote:
When you have a nominal interest rate if you divide it by the number of compounding periods per year do you get the effective interest for that specific period?  For instance if you have a 5% nominal interest rate compounded semiannually then is the effective semiannual interest rate is 2.5%.

Yes.

Simplify the complicated side; don't complify the simplicated side.

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