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%

Question

Quizplus · Accepted Answer

To find the one-year continuously compounded zero rate, we first need to determine the bond's yield to maturity using the given price and coupon rate. Then, convert this yield to a continuously compounded rate. The bond's cash flows are discounted using the semiannual zero rate to find the yield, which is then converted to a continuously compounded rate.

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