Answer to Question #304474 in Management for Tryth

Question

Z Ltd bond has a 10 percent coupon rate and a K1,000 face value. Interest is paid semiannually, and the bond has 20 years to maturity. If investors require a 12 percent yield, what is the value of the bond? Also, determine the effective annual yield on this bond?

Answer 1

An effective annual interest rate is the return on an investment or the rate owed in interest on a loan, when compounding is taken into account. These bonds typically pay out a semi-annual coupon. Owning a 10% ten-year bond with a face value of $1,000 would yield an additional $1,000 in total interest through to maturity.