2 questions abou fin

Help me study for my Business class. I’m stuck and don’t understand.

Important General Instructions for Reporting Numerical Answers:

– Do not round intermediate calculations.

– Report your answers to three decimal places.

– Unless otherwise instructed, solve problems in the given units. IE: if given units are in $K, complete your computations in these units and, as applicable, report your answer in these units (without writing “$” or “K”).

– Do not report any numerical answer as a percent. IE: for example, write

0.324 instead of 32.4%.

– Report negative numbers with a leading minus sign, like this (for example):

-23.451

Not like this: (23.451).

– Note that Canvas removes trailing insignificant figures. If you type, for example, 41.350, Canvas will remove the last decimal place and record your answer as 41.35 This is fine because 41.35 = 41.350.

Use this info for all the questions in this quiz:

A bond is for sale in the secondary marketplace for $990. The bond contract stipulates that the bondholder (from this point on) will be paid $5 in six months, and $1005 in one year.

– Assume time is measured in years unless otherwise stated.

Q1:

Assuming the issuer does not default, which is closest to the native compound interest rate (r) of this bond for someone who purchases the bond today, in semi-annual time periods?

A. 2.0079%
B. 1.0076%
C. 0.8072%

Q2:

Using your answer for r above, what is the Yield To Maturity (YTM) of this bond for someone who purchased the bond at today’s asking price? Hint: YTM = EAIR.

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