Question

The central bank policy rate, which is a 1-week repo rate, is 3.5%. Find the compounded yield of the policy rate.

Answer 1

The compounded yield of the policy rate is approximately 0.072%.

Step-by-step explanation:

To find the compounded yield of the policy rate, we can use the formula:

Compound Yield = (1 + Annual Interest Rate)^n -1

Where Annual Interest Rate = (1 + Policy Rate/100)^52 - 1

n represents the number of years. Since the policy rate is a 1-week rate, we can assume n = 1/52 (approximating a year to 52 weeks).

Let's calculate the compounded yield:

1. Annual Interest Rate = (1 + 3.5/100)^52 - 1 = 0.0388 or 3.88%
2. Compound Yield = (1 + 0.0388)^(1/52) - 1

Using a calculator, Compound Yield is approximately 0.072%.