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CHAPTER 7
ANSWERS TO ENDOFCHAPTER QUESTIONS
1.
Calculate the bond equivalent yield for a 180day Tbill that is purchased at a 6%
"ask" rate. If the bill has a face value of $10,000, calculate its price.
First calculate the price of the Tbill using eq. 7.3 which is derived from eq. 7.1 in the text.
700
,
9
$
300
000
,
10
$
000
,
10
$
360
180
06
.
0
000
,
10
$
360
0
f
d
f
P
n
y
P
P
where
P
f
is the face value ($10,000),
y
d
is the bank discount rate (6%) and
n
is the number
of days (180).
The
bond equivalent yield(y
be
)
uses the net amount of funds invested or price as the
divisor and 365 days. (See eq. 7.2)
%
27
.
6
%
100
180
365
700
,
9
$
700
,
9
$
000
,
10
$
%
100
365
0
0
n
P
P
P
y
f
be
8.
Suppose Fargood Corporation engages in a repurchase agreement with The National
Bank of Nebraska.
In the agreement, Fargood sells $9,987,950 worth of Treasury
securities to the bank and agrees to repurchase the securities in 30 days for $10,000,000.
a.
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 Spring '11
 Burns

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