Name ________________________________

Problem Set 5

Please put your answers on a separate sheet(s) rather than this question sheet.

- A T-bill that has 105 days until maturity is selling for $9,975. The T-bill has a par value of $10,000.
- Calculate the T-bill’s quote discount yield.
- Calculate the T-bill’s bond equivalent yield.
- Calculate the T-bill’s EAR.

- Using the attached
*Treasury News*, answer the following question.- What is the stop-out price for this auction?
- What percentage of total tendered bids were noncompetitive bids?
- What percentage of total accepted bids were noncompetitive bids?
- Of total accepted bids, what percentage went to Primary Dealers?
- Compute the bid-to-cover ratio for this auction.
- Show how the investment rate is calculated.

- Using a flow diagram illustrates the difference between a repurchase agreement and a reverse repurchase agreement.

- Suppose you purchase 90-day commercial paper with a par value of $1,000,000 for a market price of $998,250. Calculate the discount yield, bond equivalent yield, and equivalent annual yield on this commercial paper.

- Explain the column headings in the following Treasury bill auction results. Show how the price per $ 100 is calculated.

Bills |
CMB |
CUSIP |
IssueDate |
HighRate |
InvestmentRate |
Price per $100 |

4-Week | No | 912796ET2 | 07/23/2015 | 0.035% | 0.036% | $99.997278 |

- Suppose Big Bank enters a reverse repurchase agreement agreeing to buy T-bills from a dealer at a price of $ 34,950,000 with a promise to sell them back at a price of $35,000,000. Calculate the discount yield, bond equivalent yield, and equivalent annual yield for the following maturities.
- 7-day maturity
- 14-day maturity
- 21-day maturity

- What is the bid price of a $10,000 par value T-bill with a bid rate of 1.50 percent if there are 5, 10, 25, 50, 100, and 180 days to maturity. (Use your spreadsheet software to complete this question.

- An investor purchased a three-month, $1,000,000 face value CD, which will pay a 5.0 percent annual interest rate.
- If the market rate on the CD rises to 5.5 percent, what is its current secondary market value?
- If the market rate on the CD falls to 4.5 percent, what is its current secondary market value?

- You can purchase commercial paper of Citicorp for $ 495,000. The commercial paper has a face value of $ 500,000 and is 45 day from maturity. Calculate the discount yield and bond equivalent bond yield on Citicorp’s commercial paper.

- Draw a flow chart explaining the life-cycle of a bankers’ acceptance; i.e., from creation to maturity.