# shall we use semi annual comupunding or annual coumpunding in a 10-year zero-coupon bond ?!

An investor purchased a 10-year zero-coupon bond with a yield to maturity of 10% and a par value of \$1,000. What would her rate of return be at the end of the year if she sells the bond? Assume the yield to maturity on the bond is 9% at the time it is sold and annual compounding periods are used. A) 16.00%. B) 17.63%. C) 15.00%. D) 19.42%. shall we use semi annual comupunding or annual coumpunding in a 10-year zero-coupon bond ?!

unless otherwise stated use semiannual convention. here they have stated to use ANNUAL compounding periods CLEARLY!!!

I believe the assumption is semi annual compounding unless told otherwise, even though the concept of semi annual compounding a zero is odd in reality i believe zeros compound continuously though…

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I always default to semi-annual unless told otherwise. I do not think it is correct that zero’s compound continuously, but I could be wrong.

agree on the semi-annual, thats what the convention is in the book. In this case it states annual.

guys , u are great !!!

As per CFA book and according to Mr Fabozzi, it should be used semi-annual.

yes but what if the problem states annual. Do you use annual of still break it down semiannually?

tvPM Wrote: ------------------------------------------------------- > yes but what if the problem states annual. Do you > use annual of still break it down semiannually? If it is stated annual not. but only if explictly stated