What is the equivalent rate

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A bank quotes you an interest rate of 7% per annum with quarterly compounding. What is the equivalent rate with (a) continuous compounding and (b) annual compounding?

A five-year bond with a yield of 7% (continuously compounded) pays an 8% coupon at the end of each year.

a) What is the bond's price?

b) What is the bond's duration?

c) Use the duration to calculate the effect on the bond's price of a 0.2% decrease in its yield.

d) Recalculate the bond's price on the basis of a 6.8% per annum yield and verify that the result is in agreement with your answer to (c).

Reference no: EM133079513

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