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Problem Set 5

24 Nov

Name ________________________________

 

Problem Set 5

 

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

 

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

 

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

 

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

 

  1. 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.

 

 

 

 

  1. Explain the column headings in the following Treasury bill auction results. Show how the price per $ 100 is calculated.
Bills CMB CUSIP Issue
Date
High
Rate
Investment
Rate
Price per $100
4-Week No 912796ET2 07/23/2015 0.035% 0.036% $99.997278

 

  1. 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.
    1. 7-day maturity
    2. 14-day maturity
    3. 21-day maturity

 

  1. 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.

 

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

 

  1. 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.

 

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

 

 
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Posted by on November 24, 2016 in Uncategorized

 

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