Answer:
Ans. Effective annual rate=1.8928%
Annual Compound semi-annually=1.8839%
Step-by-step explanation:
Hi, this is the formula to find the effective annual rate for this zero-coupon bond.
[tex]EffectiveAnnualRate=\sqrt[n]{\frac{FaceValue}{Price} } -1[/tex]
n= years to maturity
That is:
[tex]EffectiveAnnualRate=\sqrt[8]{\frac{50,000}{43,035} } -1=0.018928[/tex]
Means that the effective interest rate is 1.8928% effective annual
Now, let´s find the compound interest rate.
First, we have to turn this rate effective semi-annually
[tex]Semi-AnnualRate=(1+0.018928)^{\frac{1}{2} } -1=0.00942[/tex]
0.942% effective semi annual
To turn this into a semi-annual, compounded semi-annually, we just have to multiply by 2, so we get.
1.8839% compounded semi-annually
Best of luck
