# This flashcard is just one of a free flashcard set. See all flashcards!

60

The six month and one-year rates are 3% and 4% per annum with semiannual compounding. Which of the following is closest to the one-year par yield expressed with semiannual compounding?

A.3.99%

B.3.98%

C.3.97%

D.3.96%

A.3.99%

B.3.98%

C.3.97%

D.3.96%

Answer: A

The six month rate is 1.5% per six months. The one year rate is 2% per six months. The one year par yield is the coupon that leads to a bond being worth par. A is the correct answer because (3.99/2)/1.015+(100+3.99/2)/1.022 = 100. The formula in the text can also be used to give the par yield as [(100-100/1.022)×2]/(1/1.015+1.022)=3.99.

The six month rate is 1.5% per six months. The one year rate is 2% per six months. The one year par yield is the coupon that leads to a bond being worth par. A is the correct answer because (3.99/2)/1.015+(100+3.99/2)/1.022 = 100. The formula in the text can also be used to give the par yield as [(100-100/1.022)×2]/(1/1.015+1.022)=3.99.

Flashcard info:

Author: CoboCards-User

Main topic: Finance & Investment

Topic: Derivatives

Published: 27.10.2015