examples from the United States. You should know both of these trade
customs. 䊏
EXAMPLE 2.10. In the United States, bond yields and bond coupon rates
are stated as annual rates, but the annual rates are compounded semiannually.
In April 2002, the long-term Treasury bond yielded about 5.8%. This does
not mean that it yields 5.8% per year. It means that it yields 2.9% per half
year, and we say that the bond has a nominal annual yield of 5.8%, com-
pounded semiannually. This will give somewhat different answers than the
plain annual rates. Consider the Treasury note in Example 2.2. If you paid 100
(par) for the note on an interest payment date, your broker would tell you that
you bought it at a 6.5% annual yield. Your broker actually means that you