The yield of a bond issue quoted on a bond-equivalent basis is 6.8 percent. The yield-to-maturity on an annual-pay basis is closest to: What is the formula here…(1.034) square - 1
Effective annual yield = (1.034) square - 1 = 6.91%.
the 1.034 is coming from where??
bond equivalent basis of 6.8% means that the six month yield is half, or 3.4% or .034. To convert the six month yield to an effective annual yield, you need to compound it. The way you compound a six month yield into an annual yield is to add one, square it and then subtract one.