Tutorial 03 Solutions 2009

Tutorial 03 Solutions 2009 - EFN406 TUTORIAL THREE 1...

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EFN406 1 TUTORIAL THREE Tutorial 3 Questions 1. BF, page 96, Questions 2-4. 2. Barry buys a 90-day bill with a Face value of $100 000 at a yield of 7% pa, when it is initially issued. He sells it with 60 days to maturity at a yield of 7.4% pa. What has his return been? 3. BF, page 97, Problems 2-4. 4. What is the price of a Zero Coupon Bond with a face value of X = $10, time to maturity of six months, if the continuous rate is 8% per annum? 5. What is the present value of a zero with a face value of $100, maturing in two years time if the rate for the first year is 7% and the rate for the second year is 11%? What is the average rate over two years? Hint: We are looking for the geometric average rate – see page 49 of PBEHP Ed 10. Tutorial 3 Solutions 1. BF page 96, Questions 2-4 BF, Q2 True, either approach should in theory give the same result. B F, Q3 Yes, bonds with different risk will have different yields and bonds of the same risk but with different maturities may have different yields. BF, Q4
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This note was uploaded on 09/15/2010 for the course BUSINESS 406 taught by Professor John during the Three '10 term at Queensland Tech.

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Tutorial 03 Solutions 2009 - EFN406 TUTORIAL THREE 1...

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