Explanation:

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%.

157.1. Under discounting continuously (i.e., discounting at a continuously compounded rate) the current price of a `$1`,000 par 20-year zero-coupon bond is `$204`. What is the bond’s implied continuous yield?

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MManit

Last updated: April 18, 2026 at 11:32

a) 7.95%

75.0%

b) 7.98%

0.0%

c) 8.00%

d) 8.02%

25.0%

Financial Risk Manager Part 1