Question

R(0,t) is the Spot Zero-Coupon (or Discount) Rate. It is the annualized rate on a pure Unit Discount bond B(0,t) - the bond that pays 1 dollar at time t. Assume that R(0,13) = 8.00 per cent. What is the price of B(0,13)? Answer with three decimal digits accuracy. Example: 0.728

Answer 1

0.368

Step-by-step explanation:

Price of B(0,13) = 1 / (1 + interest rate)^years

Price of B(0,13) = 1 / (1 + 8%)^13

Price of B(0,13) = 1 / (1+0.08)^13

Price of B(0,13) = 1 / (1.08)^13

Price of B(0,13) = 1 / 2.7196237

Price of B(0,13) = 0.3676979247

Price of B(0,13) = 0.368