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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?
A.8.02%
B.8.52%
C.9.02%
D.9.52%

Answer: C

If the rate is R we must have

97= 3/1.04+103e^-R*1

or

e^-R= (97-3/1.04)/103 =0.9137

so that R = ln(1/0.9137) = 0.0902 or 9.02%.

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Flashcard info:

Author: CoboCards-User

Main topic: Finance & Investment

Topic: Derivatives

Published: 27.10.2015

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