What is the EAY of a semi-annual coupon bond with a BEY of 5.000%? 2.500% 4.939% 5.000% 5.063% 5.245%

BEY (r) = 5%

No of times coupon is paid in a year (m) = 2

EAY = (1 + r/m) m - 1

EAY = (1 + 0.05/2) 2 - 1

EAY = (1 + 0.025) 2 - 1

EAY = 0.05063 = 5.063%

The correct answer is D

Explanation:

EAY of a semi-annual coupon equals 1 plus annual yield divided by 2 raised to power 2. There is need to divide the annual coupon rate by 2 since coupon is paid twice in a year on semi-annual coupon bond.