Stuck on this question re: the quarterly pay bond (Bold section below) - why am I multiplying the effective quarterly yield by 4 to get the annual YTM? I sort of understand it but hoping someone can break it down simple for me. Thank you…
“If a Bond is quoted with a YTM of 4% on a semiannual bond basis, what yields should be used to compare it with a quarterly-pay bond and an annual pay bond?”
SemiAnnual EAY = 1.022-1 = 4.04% to compare against yield on an annual pay-bond.
Annual YTM on quarterly bond - 1.021/2-1 = 0.995% x 4 = 3.98% Why do I multiply by 4 here? The quarterly yield of .995% is equal to a yield of 2% per six months…so I can just multiply by 4 and voila?