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# ch06 - Chapter 6 Money Markets Problems 1 Assume an...

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Chapter 6 Money Markets Problems 1. Assume an investor purchased a six-month T-bill with a \$10,000 par value for \$9,000 and sold it ninety days later for \$9,100. What is the yield? ANSWER: Y SP PP SP × 365 n \$9,100 \$9,000 \$9,000 × 365 90 4.51% t = - = - = 3. Assume an investor purchased six-month commercial paper with a face value of \$1,000,000 for \$940,000. What is the yield? ANSWER: Y \$1,000,000 \$940,500 \$940,000 × 360 180 12.76% cp = - = 5. You paid \$98,000 for a \$100,000 T-bill maturing in 120 days. If you hold it until maturity, what is the T-bill yield? What is the T-bill discount? ANSWER: Y T = (SP – PP/ PP) (365 / n) Y T = (100,000 – 98,000 / 98,000) (365 / 120) =6.2% T-bill discount = (Par – PP / PP) (360 / n) T-bill discount = (100,000 – 98,000 / 98,000) (360 / 120) T-bill discount = 0.0612 = 6.12% 7. A money market security that has a par value of \$10,000 sells for \$8,816.60. Given that the security has a maturity of two years, what is the investor’s required rate of return? ANSWER: 8,816.6 = 10,000 / (1 + r) 2 8,816.6 (1 + r) 2 = 10,000 (1 + r) 2 = 1.1342 33

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34   Chapter 6/Money Markets (1 + r) = 1.0649 r = 0.0649 = 6.49% 9 a. Use the Treasury Bill Yield Template to determine how the annualized yield of a T-bill would be affected if the purchase price is lower. Explain the logic of this relationship.
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ch06 - Chapter 6 Money Markets Problems 1 Assume an...

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