YTM and EAY question

[cfalevel_1]

The semi-annual interest rate that equates the present value of the bond's cash flow to its current market price is 4.75%. It follows that the bond's yield-to-maturity (YTM) and effective annual yield (EAY) are closest to:
Ans YTM 9.50 and EAY 9.73

can somebody give me the relationship between YTM to current yield and how to calculate EAY for above.

Thanks in advance

 

[oagra]

The interest rate that equates the PV to the cash flows is the YTM, they give you the semi-annual rate, so the YTM is:

YTM = 4.75 x 2 = 9.5%


This one is the basic effective annual yield calculation:

EAY = (1 + 0.0475)^2 - 1 = 9.73%

 

[Dsylexic]

9.5 is also the Bond equivalent Yield ...or is it 4.75?

 

[oagra]

yep, BEY = 4.75 x 2 = 9.5%