I understand that there is a similar thread on this but I hope you can consider the following hypothetical question regarding periodicity:
A bond has a YTM of 5% quoted on a _ semi-annum _ bond basis.
- Effective Annual Yield (" EAY") of the bond
- (i) Convert the bond to quarterly bond basis and (ii) re-determine it’s EAY.
EAY= ( 1+ 0.05/2)^2 - 1 = 5.0625%
(i) Conversion : (1 + 0.05/2)^0.5 - 1 = 1.2423%
The revised nominal annum rate will be 1.2423% x 4 = 4.9691%. This however is not the EAY of the bond but the annual rate for the bond which is now paying quarterly coupon i.e. quoted on a _ quarterly bond basis _.
(ii) EAY= (1 + 0.04969/4)^4 - 1 = 5.0625 %
- Can I say that for a quarterly pay bond ( periodicity of 4 ), the YTM is often quoted on a quarterly bond basis? Likewise for semi-annual pay bond ( periodicity of 2 ), the YTM is quoted on a _ semi-annum bond basis _?
- Are there any instances whereby a company quote a semi-annum pay bond on a quarterly bond basis?
Thank you very much!