What is the bond yield with continuous compounding

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Reference no: EM131310025

Consider a 4% semiannual coupon bond with $100 face value, 2.5 years to maturity. Suppose that 6-month, 12-month, 18-month, 24-month, and 30-month zero rates are 4%, 4.2%, 4.4%, 4.6%, and 4.8% per annum with continuous compounding respectively.

a. What is the bond price?

b. What is the bond yield with continuous compounding?

c. Explain why it might not be a good idea to use U.S. Treasury rates as risk-free rates.

Reference no: EM131310025

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