Why are zero-coupon bonds usually priced using a semiannual interest rate rather than annual?

Question by Ponchik: Why are zero-coupon bonds usually priced using a semiannual interest rate rather than annual?
Why are zero-coupon bonds usually priced with a semiannual interest rate as a discount rate rather than annual? I mean, since there are no actual coupons anyway, why use semiannual discounting? Is this some sort of ‘tradition’ or is there a technical explanation to that?

Best answer:

Answer by John W
As you’ve noted, zero coupon bonds have no interest coupons and hence no interest payments however they do have an overall yield over the life of the bond due to the discounted market price when compared to the redemption value at maturity. Such bonds are often competing with normal bonds that often have semiannual coupons which are often marketed by their semi-annual rates so for effective comparison, a fictitious semiannual coupon rate is calculated that would result in the same overall yield in order to compare apples with apples.

The technical reason is that people are idiots and don’t realize the differences between what they are comparing.

Add your own answer in the comments!

Cooking Light Annual Recipes 2010: Every Recipe…A Year’s Worth of Cooking Light Magazine

Cooking Light Annual Recipes 2010: Every Recipe…A Year’s Worth of Cooking Light Magazine

  • ISBN13: 9780848732868
  • Condition: USED – Very Good
  • Notes: BUY WITH CONFIDENCE, Over one million books sold! 98% Positive feedback. Compare our books, prices and service to the competition. 100% Satisfaction Guaranteed

List Price: $ 34.95

Price: $ 16.50

Fine Cooking Annual, Volume 3: A Year of Great Recipes, Tips & Techniques

Fine Cooking Annual, Volume 3: A Year of Great Recipes, Tips & Techniques

  • ISBN13: 9781600850431
  • Condition: USED – Very Good
  • Notes: BUY WITH CONFIDENCE, Over one million books sold! 98% Positive feedback. Compare our books, prices and service to the competition. 100% Satisfaction Guaranteed

Why is “Fine Cooking” consistently ranked as one of the top five most popular cooking magazines published today? Because not only does it offer thousands of devoted readers delicious and dependable recipes, but it shows them how to do more in less time. This delectable, year-end collection serves up dozens of the magazine’s most mouth-watering dishes, conveniently organized by course and ingredient. The recipes cover every course, including appetizers, soups, sandwiches, pastas, an extensive variety of entrees — from poultry and fish to beef and pork — side dishes, and an array of tempting desserts. And as the magazine is famed for, plenty of how-to techniques, tips, and short-cuts are included. For cooks of all skill levels, “Fine Cooking Annual, Vol. 3 “will solve a year’s worth of “what’s for dinner” dilemmas.

List Price: $ 34.95

Price: $ 22.57

4th Annual “Turning Points” National Home Front Command Exercise

The national Home Front Command exercise begins today, May 23rd 2010. The IDF Home Front Command, the National Emergency Authority, search and rescue forces, local Israeli authorities, government offices, security organizations, the education system as well as public and private organizations will participate in the nation wide exercise. The exercise is aimed at improving national preparedness and responses of the home front to emergencies. The exercise will improve cooperation between the various organizations and institutions and prepare them for different emergency scenarios. The exercise, taking place for the fourth consecutive year, was scheduled and planned in advance as a part of the IDFs 2010 training plan. This exercise is an additional measure taken by Israel to prepare the public and the local authorities for emergency periods.

Summit Medical Group Holds Annual Food Drive

Summit Medical Group Holds Annual Food Drive
Community Food Bank is the beneficiary of the Fifth Annual Food Drive, sponsored by the Information Services department at Summit Medical Group.
Read more on PRWeb via Yahoo! News

Pope, church leaders call for guaranteed health care for all people
VATICAN CITY (CNS) — Pope Benedict XVI and other church leaders said it was the moral responsibility of nations to guarantee access to health care for all of their citizens, regardless of social and economic status or their ability to pay.
Read more on Catholic News Service

Shopping for a good cause at Dazzle Daze
Every year folks in and around Conway flock to Dazzle Daze , a three-day holiday shopping event where you can not only pick up a good deal, but help out a great cause.
Read more on KTHV Little Rock

Cooking Light Annual Recipes 2008: EVERY RECIPE…A Year’s Worth of Cooking Light Magazine

Cooking Light Annual Recipes 2008: EVERY RECIPE…A Year’s Worth of Cooking Light Magazine

Better make room on your cookbook shelf–the 12th volume of this popular collectors’ edition is on its way. This must-have compilation features every recipe–more than 1,000–from a year’s worth of Cooking Light, the world’s most revered and widely read food magazine. It’s easy to see why; Cooking Light experts go way beyond anything-but-basic recipes to offer the latest scoop on food trends, international ingredients, cutting-edge tabletop style, and more. Plus tips, techniques, planning, preparation, presentation–they’re all here, not to mention updated and innovative dishes in the lighter, guilt-free versions we love.

Jammed with nutritional analyses, photographs, food facts, and menu suggestions, Cooking Light Annual Recipes 2008 will have you cooking healthier and eating smarter without sacrificing great taste in no time.

Features

  • 12th edition of this popular Cooking Light compilation features a year’s worth of recipes from the magazine

  • Emphasizes international cuisines, classic comfort foods, and new twists on traditional favorites–in their skinnier versions, of course

  • Quadruple-indexed to find what you need in a jiffy

  • Includes the magazine staff’s favorite recipes plus “best-of-the-best” selections

    List Price: $ 34.95

    Price: $ 8.13

    What is the annual coupon rate for this bond?

    Question by Sniper Kitteh will cut you down: What is the annual coupon rate for this bond?
    The current price of a 10-year, $ 1,000 bond is $ 1,158.91. Interest on this bond is paid every six months and the YTM is 14% annually. What is the annual coupon rate of this bond?

    Best answer:

    Answer by J
    Assuming 10 years left (20 semi-ann pmts.) Using a financial calc, PV=-1158.91
    FV=1000
    i=7, since it is semi annual
    n=20, again because it is semi annual
    Hit PMT, and you get $ 85, which is the semi annual payment. Double it to get the annual Payment $ 170, which is a 17% coupon rate on the bond.

    Give your answer to this question below!