$1.$ Explain why Treasuries of the same risk tend to sell for a lower yield than corporates of the same risk. Explain why municipals of the same risk tend to sell for a lower yield than either corporates or Treasuries.

$2.$ An investor buys a face amount $$1$ million of a six$-$month $(182$ days$)$ Treasury bill at a discount yield of $9\mathrm{.}25$ percent.

$($a$)$ What is the cost of purchasing these bills? Use both a formula and the inbuilt excel function.

$($b$)$ Calculate the bond equivalent yield. Indicate clearly the formula you used and show all the steps in your calculations. Recalculate the bond equivalent yield if the T$-$bill has a maturity of $275$ days.

$3.$ On November $18,1987,$ a $77/8\%$ T$-$bond maturing on May $15,1990$ was quoted at $9929/32$ for settlement on November $20,1987.$ The last coupon was paid on November $15,1987.$

$($a$)$ Compute the accrued interest using the accrued interest formula. What is the invoice price of the T$-$bond?

$($b$)$ What is the yield on the T$-$bond? Show the algebraic formula $($not the excel inbuilt formula$)$ that is used for the computation with the numbers plugged in$.$ The final answer can be computed using Excel YIELD function.

$4.$ What are the key factors that determine the bid$-$offer spreads in the U$.$S$.$ Treasury market?

$5.$ What are the risks faced by dealers in the Treasury market? What are the expected rewards?

$6.$ On $8/31/2007,$ the thirty$-$year T$-$bond with a coupon of $5\mathrm{.}00\%,$ and maturing on $5/15/2037$ was quoted at a clean price of $102\mathrm{.}50.$ The general collateral repo rate for a term of one month was $4\mathrm{.}775\%.$ Goldman Sachs receives an order from a client to buy this bond forward in one month$$s time.

$($a$)$ What is the forward price that Goldman should quote? Why?

$($b$)$ How should Goldman hedge itself assuming that the deal is done on August $31,2007?$

$7.$ What are $$special$$ repo rates and $$General Collateral$$ or GC repo rates? What is the relationship between these two rates?

$8.$ Explain the meaning of the term winner$$s curse. Why should the U$.$S$.$ Treasury be concerned about the possibility of winner$$s curse being present in Treasury auctions?

$9.$ Who are likely to be the buyers in the WI market and who are likely to be the sellers? What consequences does the WI market have for the auction prices and the secondary$-$ market prices?