Interest Rate Conventions

  

Task 

In this assignment, you will solve problems on Interest Rate Conventions.

Instructions 

Answer the following questions.

1. Please, upload xls, xlsx file.

2. Please, use the full computing power of Excel.

Questions

1. Suppose an investment of $1 made today will be worth $1.03 in three months.

A.  If the interest rate ℓ  is expressed in the Actual/360 convention and the three-month horizon has 91 days in it, what is ℓ ?

B.  If the interest rate r is expressed in the continuous-compounding convention and we treat three months as 1/4 years, what is r ?

2.Consider an investment of $1 over a horizon of one month.

A. If the interest rate ℓ  expressed in the Actual/360 convention is 4%  and the one-month horizon has 31 days in it, to what does the invested amount grow to?

B. If you had to express the same outcome using a continuous-compounding convention, and we treat one month as 1/12 of a year, what is the continuously-compounded rate r ?

3. Consider an investment of $1 over a horizon of one month.

A. If the interest rate r expressed in the continuously–compounded terms is 4% and we treat the one month horizon as 1/12 of a year, to what does the invested amount grow?

B. If you had to express the same outcome using an Actual/360 convention and the one month horizon has 31 days in it, what is the rate ℓ ?