Is bond yield always nominal annual rate? I.e. whenever we’re given bond yield of r%, n-year bond with c% semiannual coupon and $100 par value, to calculate bond’s current price we need to divide r by 2 since coupon is semiannual and use that (1+r/2) to discount pmts (instead of discounting by (1+r)^0.5)?
The difference between (1+r)^0.5 and (1+r/2) is miniscule. I like the first better, but in practice use the second.
So, it’s just an approximation? Thanks.
The quoted “bond yield” is most likely the bond equivalent yield. The semi-annual yield is the bond equivalent yield / 2. Therefore the bond equivalent yield is an approximation. The actual annual yield of the bond would be (1+ r/2)^2