Chap05 Pbms MBF12e

# Chap05 Pbms MBF12e - Problem 5.1 U.S Treasury Bill Auction...

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Problem 5.1 U.S. Treasury Bill Auction Rates March 2009 Assumptions 3-Month T-Bill 6-Month T-Bill Treasury bill, face value \$10,000.00 \$10,000.00 Price at sale \$9,993.93 \$9,976.74 a. Discount on sale \$6.07 \$23.26 b. Simple yield 0.0607% 0.2331% c. Annualized yield 0.2432% 0.4668% The interest yields on U.S. Treasury securities in early 2009 fell to very low levels as a result of the combined events surrounding the global financial crisis. Calculate the simple and annualized yields for the 3-month and 6-month Treasury bills auctioned on March 9, 2009 listed here. Discount on sale is the difference between the face value of the security and the price it is sold at auction. Simple yield is found by dividing the discount (the dollar return to the investor on maturity) by the price paid on purchase. Annualized yield is found by compounding the simple yield by the number of periods per year. In this case a 3-month T-Bill is assumed to have a 90 day maturity within a 360 day interest rate year (U.S. dollar practices).

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Problem 5.2 The Living Yield Curve Exact Internet site: http://www.smartmoney.com/investing/bonds/the-living-yield-curve-7923/ The average 90-day rate appears to be just above 5%. March 1980 -- high, but it gets worse August and September 1981 -- probably the highest period of US interest rates June 1982 -- probably the second highest SmartMoney magazine has what they term a Living Yield Curve graphic on their Internet page. This yield curve graphic simulates the U.S. dollar Treasury yield curve from 1977 through the current day. Using this graphic at www.smartmoney.com (then go to investing/bonds/living-yield-curve), answer the following questions. a. After checking the box which says “Average”, what is the average 90-day Treasury bill rate for the 1977 to current day time interval? b. In what year does the U.S. Treasury yield curve appear to have reached its highest levels for the 1977 to 2009 or 2010 period? By clicking the month by month play button on the graphic, the following dates appear to be some of the highest over the period covered: c. In what year does the U.S. Treasury yield curve appear to have reached its lowest levels for the 1977 to 2009 or 2010 period? December 2008 appears to be the lowest, combining near 0% for short-term Treasury bills with a 30- year long term rate of just above 2.5%.
Problem 5.3 Credit Crisis, 2008 Overnight 3-Month TED Overnight 3-Month TED Date USD LIBOR US Treasury Spread Date USD LIBOR US Treasury Spread 9/8/2008 2.15% 1.70% 0.45% 9/29/2008 2.57% 0.41% 2.16% 9/9/2008 2.14% 1.65% 0.49% 9/30/2008 6.88% 0.89%

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Chap05 Pbms MBF12e - Problem 5.1 U.S Treasury Bill Auction...

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