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Answer: a) 7.95%
For a zero-coupon bond priced with continuous compounding: \[ P = FV\,e^{-ycT} \] So, \[ y_c = -\frac{1}{T}\ln\left(\frac{P}{FV}\right) = -\frac{1}{20}\ln\left(\frac{204}{1000}\right) \] \[ = -\frac{1}{20}\ln(0.204) \approx 0.07946 = 7.95\% \] Therefore, the correct answer is **a) 7.95%**.
Author: Manit Arora
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$1,000 par 20-year zero-coupon bond is $204. What is the bond’s implied continuous yield?A
a) 7.95%
B
b) 7.98%
C
c) 8.00%
D
d) 8.02%
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