financial management question

Question

A subordinated bond issued in the United States by Reposol and backed by Spanish utility revenues has a yield to maturity on an APR basis of 10% but makes monthly payments. What is the effective annual yield?

Answer 1

To calculate the effective annual yield, we first need to find the semi-annual yield.

The APR of 10% means that the bond pays 10% interest per year. However, the bond makes monthly payments, which means the bond pays 10%/12 = 0.83333% interest each month.

To find the semi-annual yield, we need to first find the total interest paid in six months. The bond pays interest monthly, so in six months, it will make 6 monthly payments of 0.83333%.

Total interest paid in six months = 6 x 0.83333% = 5.00%

The semi-annual yield can be calculated using the bond's price and the total interest paid in six months. Since we don't have the bond price, we cannot calculate the semi-annual yield and, therefore, cannot calculate the effective annual yield.