Question

Assume that you have a fixed income product that costs $97.5 and promises to pay $100 in one year. Calculate the annual interest rate using three quoting conventions: i) annual: Tannual; ii) semiannual rsemiannual and iii) continuous compounding continuous- Using the rates calculated before and the conventions for which they apply calculate the one year discount factor: iv) annual: dannual; V) semiannual dsemiannuali and vi) continuous compounding dcontinuous O 1) 4.1667%; ii) 4.1241%; iii) 4.0822%; iv) 95%; v) 96%; and vi) 97% i) 4.0822%; ii) 4.1241%; ii) 4.1667%; iv) 96%; v) 96%; and vi) 96% 1) 4.1667%; ii) 4.1241%; iii) 4.0822%; iv) 96%; v) 96%; and vi) 96% O 0 i ) 2.5641%; ii) 2.5479%; iii) 2.5318%; iv) 97.50%; v) 97.50%; and vi) 97.50% None of the above

Answer 1

Option D

1.
=100/97.5-1=2.56410256410255%

2.
=((100/97.5)^(1/2)-1)*2=2.54787341673333%

3.
=-LN(97.5/100)=2.53178079842899%

4.
=97.5/100=97.50%

5.
=97.5/100=97.50%

6.
=97.5/100=97.50%