Question
6. You are investing $10K in treasury bills and are trying to choose between 13-week (3 month) bills yielding 2.370% (annualized) and 26-week (6 month)
6. You are investing $10K in treasury bills and are trying to choose between 13-week (3 month) bills yielding 2.370% (annualized) and 26-week (6 month) bills yielding 2.475%. You have the opinion that interest rates are rising and therefore hesitate to invest fully in 26-week bills. (A similar question could apply to bank CD rates). a. What is the price of the 26-week bill ($100 par value)? b. Assuming you can purchase fractional bills (which you cannot) what is your profit in part a.? c. What is the price of the 13-week bill ($100 par value)? How much will you have to re-invest at the end of its term if you fully invest your cash in 13-week bills? Again, assume you can purchase fractional bills. d. Which interest rate (annualized remember) does the new 13-week bill need to be 13 weeks from now for you to match the gain you would have received if you had just invested in the 26-week bills?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started