S15_wk06 - MACQUARIE UNIVERSITY Faculty of Business and...

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© ACST201 Tutorial 05 Exercises on Week 5 & 6 material, held in Week 06, 2015 Department of Applied Finance and Actuarial Studies, Macquarie University (All rights reserved) p.1 MACQUARIE UNIVERSITY Faculty of Business and Economics ACST201: FINANCIAL TECHNIQUES, INSTRUMENTS AND MARKETS TUTORIAL 05 (held in Week 06)—HPY & Duration Question 1 A $100,000 120-day bank bill is purchased for a price of $98,144.66. When it has 90 days to run to maturity, the bill is sold for $98,590.03. Find the investor’s holding period yield (as a rate of simple interest pa, rounded to 2 decimal places). [5.52%] Question 2 If the sale yield in Question 2 was five (5) basis points higher, the sale price would be $98,578.05. By how many basis points would the holding period yield change? Give your answer in basis points, rounded to the nearest whole number, with a plus (+) or minus (-) sign to show whether the change is an increase (+) or a decrease (-). [-15 basis points] Question 3 An investor buys a 180-day $100,000 bank bill for $96,318.78, and sells it 30 days later for $96,720.77 (at a yield of 8.25% pa, simple interest). The dollar return on the investment, which is the difference between the sale price and the purchase price, can be split into the interest component and the capital gain/loss component. (a) Find the capital gain/ loss component. [Capital loss $192.61] (b) Explain what this capital gain or loss represents. Question 4 An investor buys a 180-day $100,000 bank bill then sells it 60 days later for $98,065.56 when the market yield is 6.0% pa (simple interest), and finds that his 60-day holding period yield was 5.2956% pa (simple interest). (a) Find the purchase yield (the market yield when the investor bought the bank bill), expressed as a rate of simple interest pa (rounded to 2 decimal places). [5.80%] (b) Find the interest component of the dollar return on the investment. (The “dollar return on the investment” means the difference between the sale price and the purchase price). [$909.57] (c) Explain in words why the interest amount you found in (b) is greater than the dollar return on the investment.
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© ACST201 Tutorial 05 Exercises on Week 5 & 6 material, held in Week 06, 2015 Department of Applied Finance and Actuarial Studies, Macquarie University (All rights reserved) p.2 Question 5 An investor buys a 10-year 7% Treasury bond for $93.205 (purchase yield 8%), and holds it for two years, reinvesting each coupon received at j 2 = 7.5%. The sale yield is 7%. (a) Find the investor’s holding period yield (HPY), expressed in j 2 form, and rounded to two decimal places as a percentage. [10.70%] (b) Without doing any further calculations, explain how, and why, the HPY would change if the sale yield was lower than 7% (all other details being unchanged).
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