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Calculate the implied spot rate if the 5-year discount factor is 0.8950 and you assumed semi-annual...

Calculate the implied spot rate if the 5-year discount factor is 0.8950 and you assumed semi-annual compounding.
The spot rate should be displayed as an annual figure.

		2.23%
		1.95%
		2.10%
		1.11%

Expert Solution

the spot rate is 2.23% p.a

given,

5 year discount factor = 0.89500

n = 10 ( since semi annual 5 years x 2 =10)

we know

substituting,

taking 10th root on both sides

= 1.11154 %

but this r is semi annual rate,

so annual rate will be 2. X 1.11154 % = 2.23%

hence the spot rate is 2.23% p.a

jeff jeffy answered 2 years ago

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