$1.$ A government securities dealer needs to make a $7\%$ pre$-$tax annual return on $$10$

million of capital employed to make it worthwhile to make a market in T$-$Bills. The bid

discount on $$10,000$ face value, ninety day T$-$Bills is $3\mathrm{.}50\%,$ and the dealer can expect to

do $5200$ round trip deals today. A round trip is a buy and a sell transaction.

a$)(0\mathrm{.}6)$ What is the bid price of the T$-$Bills?

b$)(0\mathrm{.}6)$ What is the ask price of the T$-$Bills?

c$)(0\mathrm{.}6)$ What is the ask discount be$?$

$2.$ A corporate treasurer is looking to invest about $$4$ million for $60$ days. Commercial

paper rates are a $3\mathrm{.}65\%$ discount and CD rates are $3\mathrm{.}66\%.$

a$)(0\mathrm{.}6)$ What is the CP$$s bond equivalent yield?

b$)(0\mathrm{.}6)$ What is the CD$$s bond equivalent yield?

c$)(0\mathrm{.}6)$ Which is the better investment?

$3.$ You are a corporate treasurer for Esso Oil. The quoted rate on dollar denominated euro

commercial paper has just blipped down recently. Your firm can issue $$10$ million of

$180-$day euro commercial paper in the London markets at $3\mathrm{.}45\%.$ You can also invest the

proceeds in the United States in comparable maturity negotiable dollar$-$denominated CDs$,$

which are quoting $3\mathrm{.}95\%.$

a$)(0\mathrm{.}6)$ How much can Esso borrow today in the Euro CP market?

b$)(0\mathrm{.}6)$ How much can Esso make after $180$ days by investing in the U$.$S$.$ CD market?

c$)(0\mathrm{.}6)$ Ignoring any transactions costs, how much profit$/$loss can Esso make after $180$

days by borrowing in the euro markets and investing in the United States?