The six-month zero rate is 8% per annum with semiannual compounding. The price of a one-year bond that provides a coupon of 6% per annum semiannually is 97. What is the one-year continuously compounded zero rate? O 9.02% O8.02% O 8.52% O 9.52%

The six-month zero rate is 8% per annum with semiannual compounding. The price of a one-year bond that provides a coupon of 6% per annum semiannually is 97. What is the one-year continuously compounded zero rate? O 9.02% O8.02% O 8.52% O 9.52%

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter4: Time Value Of Money

Section: Chapter Questions

Problem 15PROB

See similar textbooks

Related questions

Q: Assume that you conduct a relative value trade and close it out after 5 days. Your 5-day return is…

A: Bond equivalent yield = return up till days to maturity * 365 days in a year /days to maturity

Q: Bond A is zero- coupon bond paying $100 one year from now.Bond B is a zero- coupon bond paying $100…

A: The question pertains to calculation of bond price. Following formula is being used for calculation…

Q: A bond, paying semi-annual coupons of 3% per annum, matures in 7 months time. The interest rate…

A: As per the given information: Semi-annual coupon rate on bond which matures in 7 months = 3% per…

Q: What is the Macaulay duration (years) of 9% coupon bond making annual coupon payments if it has 3…

A: given, coupon rate =9% ytm =9% n=3 years

Q: A bond has the following terms: Principal amount $1,000 Semi-annual interest $45 Maturity 15…

A: Given information: Principal amount is $1,000 Semi-annual interest is $45 Number of years is 15…

Q: The coupon bond with a face value of £10, pays a coupon of 5% per year, paid semi-annually. It has 3…

Q: A 10-year government bond has a face value of £100 and an annual coupon rate of 5%. Assume that the…

A: Bond Present Value is also known as Current price of the bond on which we can purchase it, It is…

Q: A 9-year bond has a yield of 10% and a duration of 7.194 years. If the market yield changes by 50…

A: Bond yield =10% Duration = 7.194 Market yield Change by = 50 basis point

Q: Yield Computation. What is the yield to maturity for a bond paying $45 semiannually that has twelve…

A: Semi-annual coupon payment=$45 Years to maturity=12 years Bond price=$975 Face value=$1000…

Q: The price of a two-year 10% coupon bond that pays semi-annual interest and with a required return of…

A: Compound = semiannually = 2 Time = t = 2 * 2 = 4 semiannual Coupon rate = 10 / 2 = 5% Required rate…

Q: The six-month zero rate is 9% per annum with semiannual compounding. The price of a one-year bond…

A: Present value of bond = Present value of cash flows with respective discount rate of time period…

Q: 1. Suppose the interest rate on a one-year bond today is 6% per year, the interest rate on a…

A: The yield curve of bonds refers to the depiction of the interest rates provided by bonds with the…

Q: Bond A has a What is (X + and Z is the F O An amou O An amou O An amou O An amou O An amou 000

A: Coupon payment refers to an amount that is paid at every period for the repayment of the borrowed…

Q: Consider a bond paying a coupon rate of 10% per year semiannually when the market interest rate is…

A: a) The formula to compute the bond price is as follows:

Q: Consider a bond (with par value = $1,000) paying a coupon rate of 10% per year semiannually when the…

A: The bond price is the market value of a bond, determined by supply and demand. It is influenced by…

Q: In a market where spot rates apply, the two-year forward rate of interest at time t = 1 is 6% per…

A: For the two-year fixed interest bond:For the three-year fixed interest bond:

Q: A 2-year zero-coupon bond with $100 principal is trading at $95.00. Price of a 2-year coupon bond…

A: In this given question we, need to calculate the spot rate for a Zero coupon bond and the spot rate…

Question

The six-month zero rate is 8% per annum with semiannual compounding. The price of a one-year
bond that provides a coupon of 6% per annum semiannually is 97. What is the one-year
continuously compounded zero rate?
O 9,02 %
O8.02 %
O8.52 %
O 9.52%

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1: Define continuous componding

VIEW

Step 2: Excel snip is as follows-

VIEW

Solution

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 3 steps with 2 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Given an interest rate of 8.5 percent per year, what is the value at date t = 8 of a perpetual stream of $1,900 payments with the first payment at date t=14? Multiple Choice O $13,701.13 O $14,865.72 O $15,163.04 $22,452.94 $14,568.41
A payment stream consists of a payment of $1600 today, a payment of $2400 in 3 months, and a payment of $2600 in 21 months. What is the fair market value of this payment stream 18 months from today? Assume a compound interest rate of 6.5% compounded quarterly. Today + $1600 FV1 = $ PV3 = $ Start by calculating the following values on the time diagram: FV2 = $ 3 Months The fair market value of this payment stream is: Total = $ Time Value of Money Solver $2400 Enter the given values. 0 N: = 0 Number of Payment Periods 1:% = 0 Annual Interest Rate as a Percent PV: = Present Value PMT: = 0 Payment FV: = Future Value P/Y: 0 12 V Payments per Year C/Y: 12 V Compounding Periods per Year PMT: = END € Solve Solve Solve Solve 18 Months Solve FV2 FV1 + PV3 Total 21 Months $2600
3. The 1-year spot rate is 8%p.a. effective. The term structure of 1-year effective forward rates is as follows: at time t = 1 the rate is 7%, at time t = 2 the rate is 6%, at time t = 3 the rate is 5%. (a) Determine the term structure of spot rates. (b) A fixed income security pays £10 annual coupons and it is redeemed after 4 years for £100. Compute its price at time t = 0.
A 10-year floating rate (annually paid) security selling for 101.32 pays a rate based on a reference rate plus 50 basis points. Assume the current value of the reference rate is 7%. What is the discount margin?
Assuming a discount rate of 6%, what is the future value of 100,000 per year for 12 years if the payments occur at the beginning of each period? Question 6 options: $1,619,514 $1,588,474 $1,686,994 $1,805,084 $1,788,214
What is the future value of GH¢ 1,200 a year for 40 years at 8 percent interest? Assume annual compounding. #randomized O A. GH¢ 301,115 B. GH¢ 306,492 O C. GH¢ 310,868 OD. GH¢ 342,908 O E. GH¢ 347,267
An interest rate is 12% APR when measured using semiannual compounding. What is the equivalent rate when measured using continuous compounding? How much will $100 grow to in 3 years if it's invested at 12% APR with semiannual compounding? Is that more, less, or the same as it will grow to over the same period using the continuously compounding equivalent rate? 11.33 %; $140.49; same 11.65%; $141.85; same 11.33%; 140.49; less 11.65% ; 141.85; less 11.33%; 140.49; less. You selected th
What is the future value of $4,500 after 6 years if the nominal interest rate is 8.50% compounded semiannually? Group of answer choices $7,415.24 $7,341.60 $7,934.31 $8,156.77 $7,637.70
The forward price of wheat for delivery in six month is $6.88 per bushel, while the spot price is $6.50. The six-month interest rate in continuously compounded terms is 5% per year. What is the implied repo rate? O None of these O 2.84% O 5.68% O 11.36%
Calcutate the inftation-free interest rate assuming that the inflation rate is 6% and the nominal interest rate is 18%. What annual savings, made at the end of each year for a period of 5 years, are required in nominal terms to ensure that at the end of 10 years you will be able ta withdraw R20,0000?
What is the present value of P2,500 semiannual payments received at the beginning of each period for the next 10 years? The annual percentage rate is 6% 37,194.70 38,309.50 35,809.50 36,884.80 None of the above
Investment X offers to pay you $5,800 per year for eight years, whereas Investment Y offers to pay you $7,900 per year for five years. Use Appendix D. (Round "PV Factor" to 3 decimal places. Round the final answers to 2 decimal places.) Calculate the present value for Investment X and Y If the discount rate is 5%. Investment X Investment Y Present value Investment X Investment Y 14 Calculate the present value for Investment X and Y If the discount rate is 15%. Present value M PA