The Six-Month Zero Rate Is 8% Per Annum with Semiannual

question 5

Multiple Choice

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%

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Definitions:

Amortized

A process of paying off debt in regular installments over a period of time, where each payment is partially principal and partially interest.

Compounded Semi-annually

Refers to the process of calculating interest on both the initial principal and the accumulated interest from previous periods twice a year.

Amortization Schedule

A table detailing each periodic payment on an amortizing loan (typically a mortgage), as well as how much of each payment is interest versus principal and the balance remaining after each payment.

Compounded Semi-annually

Interest calculation method where interest is added to the principal sum of a loan or deposit twice a year, resulting in interest earning interest.