
The fact all the interests are paid at the end with the principal has no incidence on the compounding...
 
Case 1: the book compound the IR while you are not. Since it spans several years (& assuming annual compounding) you must take it into account since you will earn interest on your interest
Case 2: should not be compounded since over 6 months (still assuming annual compounding), i.e. 6% annual is 3% over 6 months since the interests to receive on second half of the year will be based on starting value (& not starting value + interest for first period of 6 months)
 
 
Rgds,
Julien
> Date: Tue, 27 Jan 2009 09:56:54 -0800> From: bogaso.christofer@gmail.com> To: r-sig-finance@stat.math.ethz.ch> Subject: Re: [R-SIG-Finance] [R-sig-finance] Plese help me to understand this> > > But Zero rate semblances with Zero coupon bond, where all Interests will be> paid at maturity. Then why it is compounded annually?> > > davidr-2 wrote:> > > > The text is compounding interest but you are not.> > HTH,> > -- David> > > > > > -----Original Message-----> > From: r-sig-finance-bounces@stat.math.ethz.ch> > [mailto:r-sig-finance-bounces@stat.math.ethz.ch] On Behalf Of Bogaso> > Sent: Tuesday, January 27, 2009 11:27 AM> > To: r-sig-finance@stat.math.ethz.ch> > Subject: [R-SIG-Finance] [R-sig-finance] Plese help me to understand> > this> > > > > > Hi all,> > > > Can anyone please help me to understand, whether there is any difference> > between "Zero rate" and "Zero Yield". I thought they are synonymous and> > both> > are used in Zero-coupon bond context. However I got different results in> > my> > textbook while those two are used in different places. Here is the> > problem :> > > > Case 1. Suppose 5-year spot yield is 7.6 p.a.. Now assume there is a> > receivable after 5 year worth $100. Then current value of this> > receivable is> > $100*(1+7.6*5/100)^-1. Am I correct? However in my textbook, it is> > reported> > as $100*(1+7.6/100)^-5.> > > > Case 2. Suppose 6 month spot rate 6.39 p.a.. Now assume there is a> > receivable after 6 months worth $100. Then current value of this> > receivable> > is $100*(1+6.39/100/2)^-1. Here my understanding is matching with my> > textbook.> > > > Please forgive me as I understand, this question is too fundamental. But> > still I think I am missing something important. Can anyone please help> > me?> > > > Regards,> > -- > > View this message in context:> > http://www.nabble.com/Plese-help-me-to-understand-this-tp21690077p216900> > 77.html> > Sent from the Rmetrics mailing list archive at Nabble.com.> > > > _______________________________________________> > R-SIG-Finance@stat.math.ethz.ch mailing list> > https://stat.ethz.ch/mailman/listinfo/r-sig-finance> > -- Subscriber-posting only.> > -- If you want to post, subscribe first.> > > > _______________________________________________> > R-SIG-Finance@stat.math.ethz.ch mailing list> > https://stat.ethz.ch/mailman/listinfo/r-sig-finance> > -- Subscriber-posting only.> > -- If you want to post, subscribe first.> > > > > > -- > View this message in context: http://www.nabble.com/Plese-help-me-to-understand-this-tp21690077p21690727.html> Sent from the Rmetrics mailing list archive at Nabble.com.> > _______________________________________________> R-SIG-Finance@stat.math.ethz.ch mailing list> https://stat.ethz.ch/mailman/listinfo/r-sig-finance> -- Subscriber-posting only.> -- If you want to post, subscribe first.
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