Hello - In the Mock 2010 Exam Question 6A we are asked to calculate the initial dollar safety margin. I used 3.82% (annual), rather than 1.91 (semi-annual).
Hard to believe I’m asking this, but is the rate of a US govn’t bond always quoted like this.
Corporate bonds are as well… unless I’m just mixing things up in my head after a very late night yesterday. I think I’ll try to get more sleep tonight.
Thank you.
for contigent immunisation. always use (1+i/2)^n
and yes Gov bonds are normally semi-annual bonds
Notes, too.
But not Bills.
Thank you for the quick responses.
Yeah good question. I kinda wondered about that too. I just got used to doing it.
hey all - this question quotes a BEY. so, I think whether you do that 1+r/2^(t*2) or not depends on how the rate is quoted.
BEY = 2*semi-annual yield.
so in this case it was a simple divide the BEY in 2 and use that rate. but this is not always the case. point is - whether you use it or not, it depends on the quoting convention of the rate given