Portfolio A: A $100 face-value 2-year risk-free bond with 4% semi-annual coupons. Coupons are paid on January 1 and July 1.

 

Portfolio B: A $100 stock with expected 3% annualized dividends paid quarterly. Dividends are expected to be paid on January 1, April 1, July 1, and October 1.

 

Portfolio C: A $100 cryptocurrency ETF with expected 4% annualized dividends paid quarterly. Dividends are expected to be paid on January 1, April 1, July 1, and October 1.

 

Portfolio D: A $100 mortgage with two years remaining and 8 payments remaining. The interest is 3% annual interest. Assume the interest is the same amount for each quarter (does NOT depend on the number of days). Mortgage payments are quarterly.

 

Required:

Compute the discount factor for each of the 8 time periods, assuming a start date of January 1, 2022. Use continuous compounding and a discount rate of 5%.

Answer rating: 100% (QA)

To compute the discount factor for each of 8 time periods with continuous compounding we use the for... View the full answer