11 - Question and Problem Answers Chapter 11 - Money Market...

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P $100,000 1 0.0168 29 360 $99,864.67 P $100,000 1 0.0167 29 360 $99,865.47 Yd MM 360 29 $134.53 $99,865.47 0.01672277 Yd S 365 29 $134.53 $99,865.47 0.01695503 Question and Problem Answers page 1 Chapter 11 - Money Market Instruments ± 11 - 1: A. The bid is 1.68. Thus we would be able to sell the $100,000 T-Bill for $99,864.67 B. The ask is 1.67. Thus we would pay $99,865.47 for a $100,000 T-Bill. This means that you can buy the T-Bill from the bond dealer for $99,865.47 and then sell it right back to him for $99,864.67. The difference, 80¢, represents the dealer’s profit. He buys low and sells high. C. When the T-Bill matures March 7, 2009 it pays $100,000. This means I earned $134.53 over 29 days. 29 days March 7, 2009 $99,865.47 $100,000.00 $134.53 earned D. The money market yield is 1.6723% E. The straight yield is 1.6955% F. For T-Bills of 182 days or less the straight yield equals the ask yield. Thus the ask yield is 1.6955% or 1.70%
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2F INANCIAL MARKETS . .. AND THE INSTRUMENTS THAT TRADE IN THEM P $500,000 1 0.0180 211 360 $494,725.00 P $500,000 1 0.0179 211 360 $494,754.31 Yd MM 360 211 $5,245.69 $494,754.31 0.018089772 Y S 365 211 $5,245.69 $494,754.31 .018341018 Y Ask 211 ± 211 2 730 (211 182.5) $5,245.69 $494,754.31 (211 182.5) 211 211.5220731 28.5 0.018318356 1.832% ± 11 - 2: A. The bid is 1.80. Thus we would sell the $500,000 T-Bill for B. The ask is 1.79. Thus we would pay $98,950.86 for a $500,000 T-Bill.
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This note was uploaded on 08/25/2009 for the course FIN 300 taught by Professor Jackson during the Spring '07 term at University of Illinois at Urbana–Champaign.

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11 - Question and Problem Answers Chapter 11 - Money Market...

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