MAS
C39SM_Tutorial1_solutions.docx

C39SM_Tutorial1_solutions.docx - International Bond and...

Info icon This preview shows page 1. Sign up to view the full content.

International Bond and Currency Markets C39SM1 Tutorial Problem Set 1 Solutions 1. Credit risk - risk that principal will not be repaid when due (don’t need to talk about coupon as not applicable to Bills). For a UK Treasury Bill, this risk is very small, virtually zero, because the UK government conducts a prudent monetary and fiscal policy that ensures the stability of its securities in the market. 2. 91 day Bill, sells at £98.25p. So over 91 days, £98.25 accumulates to £100, giving a 91day yield of: 100 x 1.75/100% = 1.75%. So the yield over a year is 4 x 1.75 = 7.2%. Note that (100-98.25)/100=1.75 3. A Bill could be traded above par if the general price level was falling (we normally assume prices stable or increasing over time) - for then the Bill can offer a positive real rate of return even when its nominal return is negative. 4. Irredeemable bond - there is no maturity date, by definition. 5. Governments have continuous funding requirements year-by-year, and these can be met more easily if there are in the market bonds of a wide range of maturities - because then in any given year
Image of page 1
This is the end of the preview. Sign up to access the rest of the document.
  • One '14
  • Public Finance, general price level, wide range, Tutorial Problem Set, positive real rate

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern