Question: You are given the following data on different rates with the same maturity (1.5 years), but quoted on a different basis and different compounding frequencies:

  1. You are given the following data on different rates with the same maturity (1.5 years), but quoted on a different basis and different compounding frequencies:
  2. a)Bond 1: Continuously compounded rate: 2.00% annualized rate
  3. b)Bond 2: Continuously compounded return on maturity: 3.00%
  4. c)Bond 3: Annually compounded rate: 2.10% annualized rate
  5. d)Bond 4: Semi-annually compounded rate: 2.01% annualized rate

Is there any one that seems to be mispriced? Which one?

  1. a)Bond 1
  2. b)Bond 2
  3. c)Bond 3
  4. d)Bond 4

Hint: See Lecture notes for a similar problem.

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