Semi Annual Bonds

CFA Level I Fixed Income
#1

I dont know if this is the correct section to ask this but i will shoot.
So i have been struggling with some fundamentals stuff and i would like to ask this

If i have a semi annual coupon bond with annual interest 5% being sold at par , and i want an equivalent annual coupon bond that is also sold at par , i have to calculate the effective annual rate ? so the answer would be 5,625%? Or is it easier such as bonds are always sold at par and i am struggling for no reasons at all?

Thank you for your time!

#2

Actually, it’s 5.0625% EAY, not 5.625%.

You need to know how to do this to compare bonds with different payment frequencies. Definitely not for no reason.

#3

thank you very much , so to be cler , i guess the reason for that is the hypothesis we do that coupons are reinvested on YTM interest right? and yeah 5,0625% i am really sorry i didnt calculate it when i was writting.

#4

That’s a typical assumption for calculating YTM (IRR).