Exam 1 Fin 620 Spring 2007 Aproblems answer key

Exam 1 Fin 620 Spring 2007 Aproblems answer key - Version A...

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6 Part II. Please answer the following questions in the space provided. If you need additional space, please use the back of the page. 34. Clearly define the difference between Investment and Speculation. See overhead slides from Chapter 1 35. A Treasury Bill with a Face Value of $100,000 has a bank discount yield of 6.80% and it matures in 70 days. a. What is its price (rounded to the nearest dollar)? 100,000 – [(0.068*100,000*70)/360] = $98,677.78 b. What is the effective annual yield or yield-to-maturity on the security if you hold it until its maturity? (Please round this answer to the nearest basis point) [100,000/98,677.78] (365/70) – 1 = 0.07186 7.19% c. Assume that you buy the security above and sell it after holding it for 30 days when the Banker's Discount yield is 6.50%. What will be your holding period yield for the 30-day holding period on an effective annualized yield basis? (Round this answer to the nearest basis point). 100,000 – [(0.065*100,000*40)/360] = $99,277.78 (new price after 30 days)
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Exam 1 Fin 620 Spring 2007 Aproblems answer key - Version A...

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