ActSc 445/845
Assignment One
Due Date: Tuesday, October 5, 2010.
1. For a TBill with a given price
P
, face value
F > P
, and maturity of
n <
360 days:
(a) Show that the rates
r
D
(bank discount yield) and
r
C
(yield quoted
in Canada) satisfy the relation
r
D
< r
C
;
(b) Let
r
be the TBill’s eﬀective annual yield. Is it possible to have
r < r
C
? Justify your answer.
2. You purchased a Canadian TBill with face value 1000 on March 1,
2010. The Tbill is expiring on September 1, 2010 and is quoted at
3.2%. On May 1, 2010, this TBill is quoted at a rate
r
so that it has
the same price as a US TBill with the same expiration date and face
value which is currently quoted at 3.0%. If you sell your Tbill on May
1, 2010, what will be the eﬀective annual return on your investment?
3. This exercise requires that you solve a nonlinear equation (for example,
using Excel’s Goal Seek function, or Matlab’s fsolve). Consider a ﬁve
year bond paying semiannual coupons issued on January 1, 2009, with
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 Fall '09
 ChristianeLemieux
 1969, Forward contract, Forward price, Spot price, spot rates

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