JDGutzmann
Member
i faced the same problem as well and was doubting if the none of the answers was correct because i obtained:
1- e ^ (-0.042*2/0.6) = 13.05%
However, the answer provided in the question was 13.5% and the rests were much lower than this percentage....
Either GARP made a typo or I worked in a wrong way.
I got:
1 - (1 - 0.042 / 0,6 ) ^ 2 = 0.1351
Which uses not the continous but discrete PD(!)
I have to say that, despite the statement in the cover about all interest rates and the like to be continously compounded, some were definitely not, and not marked as such. I am positive that the question about two ways to average forward rates also used discretely compounded rates. I think GARP wasn't consistent on this.