If the yield to maturity on an annual-pay bond is 7.75%, the bond-equivalent yield is closest to:
- 8.05%.
- 7.90%.
- 7.61%.
what question is trying to convey? Help me with the language.
Bond equivalent yield: nominal rate compounded semi-annually (2x per year).
It’s not a well written question.
When they say “the yield to maturity on an annual-pay bond”, what they mean is the effective annual yield to maturity. However, there’s no reason that you should understand that that’s what they mean.
In the real world, when the YTM is quoted on an annual-pay bond, it’s quoted as BEY, same as every other bond.