Yield Calculation i. Assume that newly issued three -month (90 days) T - bills with a par value of $1,000 sellsat discount rate of 3%. a) What is the price of this three-month T-bills? b) What is the 90-day holding periodreturn of this T - bill? c) What is the annualized yield ofthis three-month T - bill? ii. Assume that an investorpurchased a three-month commercial paper with aface value of $1,000,000 for $940,000. This investorheld the commercial paper for 60 days before he sold itat a price of $980,000. What is the annualized yield ofthis investment? iii. Assume that Canada is in a strongeconomic condition, and you expect the economy tocontinuously grow over the next six months. Given yourexpectations and your calculation for the yield of thethree-month T-bills and the three-month commercialpaper (note: annualized yield for the three-monthcommercial paper if the investor chose to hold it tillmaturity is different from the one you calculate in part ii), would you prefer to hold T - bills, or the commercialpaper in your investment portfolio?

As per company guideline, first three parts will be solved.

Yield Calculation i. Assume that newly issued three- month (90 days) T - bills with a par value of $1,000 sells at discount rate of 3%. a) What is the price of this three -month T-bills? b) What is the 90-day holding period return of this T-bill? c) What is the annualized yield of this three-month T-bill? ii. Assume that an investor purchased a three-month commercial paper with a face value of $1.000.000 for $240.000 This invoctor

Yield Calculation i. Assume that newly issued three- month (90 days) T - bills with a par value of $1,000 sells at discount rate of 3%. a) What is the price of this three -month T-bills? b) What is the 90-day holding period return of this T-bill? c) What is the annualized yield of this three-month T-bill? ii. Assume that an investor purchased a three-month commercial paper with a face value of $1.000.000 for $240.000 This invoctor

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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(Annual percentage yield) Compute the cost of the following trade credit terms using the compounding formula, or effective annual rate. Note: Assume a 30-day month and 360-day year. a. 4/5, net 60 b. 2/15, net 45 c. 4/10, net 60 d. 2/15, net 60 C a. When payment is made on the net due date, the APR of the credit terms of 4/5, net 60 is %. (Round to two decimal places.)
Find the purchase price of a 91-day treasury bill that matures at $5000 if the T-bill is sold to yield an annual interest rate of 4.5%.
Example: suppose that the three-month T-bills annualized rate is 8% and that Elizabeth company plans to issue 90-days commercial paper. If Elizabeth co. believes that an 0.7 percent default risk premium, an 0.2 percent liquidity premium, and a 0.3 percent tax adjustmer are necessary to sell its commercial paper to investors. What is the appropriate yield to be offered on the commercial paper? If the default risk premium decreases from 0.7 percent to 0.5 percent but the annualized T-bills rate increases from 8percent to 8.7 percent, what is the appropriate yield to be offered on the commercial paper?
Below are two T-Bill purchases: A T-Bill with a face value of $900,000 and current market price of $850,000. The maturity date is in 250 days. A T-bill has a face value of $600,000, a current market price of $570,000 and matures in 200 days. Please calculate for both T-bill purchases based on the following: (a) What is the bank discount yield? Calculate the holding period yield Calculate the Effective Annual Yield Calculate the Money Market Yield (b)Explain why the Effective Annual Yield is greater than the Bank Discount Yield
Can you please help me with this? A commercial bill with a face value of $50 000 has a current price of $49,291. This bill is trading at a yield of 7.5% which necessarily implies a time to maturity of how many days? (Just give the number) What would be the most certain formula to be used to solve this problem and why is it that formula? Also, are commercial bills subject to 360-day interest payment? How can the formula be used to solve the problem?
You are given a nominal annual rate of discount of 12% convertible (compounded) quarterly. Determine the present value on 1/1/2010 of $20,000 to be paid on 1/1/2015. Hint: Let X be the value on 1/1/2010. The future value is $20,000. Recall for an effective rate of discount, d, A(t) = Ap*(1-d)t. You will need to adjust your formula to reflect the fact that the given rate is a nomi O $11,000 but $11,250
A 10-year floating rate (annually paid) security selling for 101.32 pays a rate based on a reference rate plus 50 basis points. Assume the current value of the reference rate is 7%. What is the discount margin? O +30.94 bps O -309.4 bps O -30.94 bps O +309.4 bps
Assume that you conduct a relative value trade and close it out after 34 days. Your 34-day return is 0.40%. Annualize this return as an effective annual yield (EAY). Assume that a year has 365 days
At auction, 2-month T-bills were sold at a discount of 6.530%. What was the simple annual yield r?
A promissory note with a face value of $500,000 has 45 days until maturity. If the relevant yield is 7% then what is the current price of this promissory note? Can you please give me the solution for this accompanied by an explanation? Thank you so much!
6. The price of a 270-day commercial paper is $7,937. If the annualized yield is 5.30%, what will the paper pay at maturity? A. $8,358 B. $7,640 C. $7,538 D. $8,246
Suppose that you borrow $60,000 at 9% compounded monthly over five years. Knowing that the 9% represents the market interest rate, you compute the monthly payment in actual dollars as $1,245.51. If the average monthly general inflation rate is expected to be 0.25%, determine the equivalent equal monthly payment series in constant dollars.

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