One area that gives me trouble is when (or when not) to de-annualize the rates/yields given in the question .
For example, in a put-call parity question say the 90-day Treasury bill rate is given as 5.4%. Should the rate used in the calculation be 5.4% or 5.4%/4?
Similarly, for a Forward Rate question say the 6month spot rate is given as 6.0%. Is the correct rate to use in the calculation 6.0% or 6.0%/2?
In PC parity you’d need to discount for the length of the period - so you’d actually do 1.054^0.25 in the denom.
If the 6m spot is BEY, that’s correct you would divide by 2.
Unless they tell you (explicitly) that it’s for a different time period (e.g., a holding period yield for other than a year), all interest rates given are annual.
Whether you divide by n or (un)compound depends on whether you’re given a nominal rate or an effective rate (or, as callmenoobie mentions, a BEY). Remember: LIBOR rates are nominal, not effective.
You divide when it’s nominal and (un)compound when it’s effective?
Yup.