Based on the periods of compounding, the rate that is mispriced is the annually compounded rate.
First find out the effective rates of all the rates.
Continuously compounded rate:
= e ^ (Annual rate x period of compounding) - 1
= e⁰.⁰² ˣ ¹.⁵ - 1
= 0.0305
= 3.05%
Continuously compounded return on maturity:
= e ^ (Yield x period of compounding) - 1
= e⁰.⁰³ ˣ ¹ - 1
= 0.0305
= 3.05%
Annual compounding :
= ( 1 + (Rate of compounding / Number of compounding periods in year))^number of compounding periods - 1
= (1 + 2.10%)¹.⁵ - 1
= 0.0317
= 3.17%
Semi-annual compounding:
= ( 1 + (Rate of compounding / Number of compounding periods in year))^number of compounding periods - 1
= (1 + 2.01%/2)³ - 1
= 0.0305
= 3.05%
Mispricing occurs at Annually compounded rate.
Find out more on effective rate at https://brainly.com/question/6026546.
