©
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 120day 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 180day $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 180day $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
60day 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.
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
©
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 10year 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).
This is the end of the preview.
Sign up
to
access the rest of the document.
 One '13
 none
 Macquarie University, J2, Department of Applied Finance and Actuarial Studies

Click to edit the document details