CHE374-2010F-PS03 - CHE374F-2010 Problem Set #3 1. You are...

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Page 1 of 2 CHE374F-2010 Problem Set #3 1. You are given the following T-bill maturity rates and prices. Calculate the yield rates (effective annual and continuously compounding annual) for each T-bill. Plot both yield curves. Maturity (Months) T-Bill Price 3 99.5 6 99.1 9 98.85 11 98.1 What would be the effective annual and continuously compounding annual “risk-free” rates for an investment maturing in 7 months? You know that you will have to invest at the risk-free rate 6 months from now for a term of 5 months (i.e. you will be investing from months 6 to 11). Based on the market conditions as given in the table, can you think of a way of determining the market’s expectation of what the 5 month risk-free rate would be 6 months from now? 2. You are given the following price data for T-bills. Maturity (Months) T-Bill Price 2 99.4 6 98.9 8 97.85 11 97.3 Assume the risk-free rate for the first two months is flat (i.e. the two month rate is equivalent to the one month rate). Estimate the price of a T-bill maturing in:
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This note was uploaded on 04/20/2011 for the course CHE 374 taught by Professor Lawrnshyn during the Fall '11 term at University of Toronto- Toronto.

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CHE374-2010F-PS03 - CHE374F-2010 Problem Set #3 1. You are...

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