A $500 000 180-day note is purchased with a yield of 6% and sold 90 days later with a yield of 4.5%.Calculate the continuously compounded holding period return for this note over the 90 days.

Question

Quizplus · Accepted Answer

Using equation 5.1,the initial price of the $500 000 note with a yield of 6% and with 180 days to maturity is $485,630.67.In 90 days at the new yield of 4.5%,the price of the note is $494,512.95.The continuously compounded return is therefore ln($494512.95 - $485630.67)= 0.0240 or 2.40%.

A $500 000 180-Day Note Is Purchased with a Yield −2.42% -2.42 \% −2.42%

A $500 000 180-Day Note Is Purchased with a Yield $-2.42 \%$