A 182-day, $1,000,000 Government of Canada treasury bill yields 3.99% per annum is sold to Investor A. (Note: For your calculations, you are welcome to use the Treasury Bill Worksheet attached at the end of the exam for your calculations.)

What is the price of the T-bill?

Assume the correct answer to a) was $980,000. The Treasury Bill was sold 65 days after the initial transaction for $990,900 by Investor A to Investor B.

What is the dollar amount of interest earned by Investor A? (1 Mark)

What is the effective % return on investment earned by Investor A? (1 Mark)

Assuming Investor B holds the Treasury Bill until maturity, what dollar amount of interest did Investor B gain or lose? (1 Mark)

What is the effective annual % return on investment earned/lost by Investor B?

If there is a material difference in the % rate of returns earned by Investor A and Investor B, explain why this has occurred? (1 Mark)

For Bank of Canada:

After all transactions are considered, what was the effective interest rate paid by the Bank of Canada which originally issued the T-Bill? (1 Mark)

Why could Bank of Canada's effective rate it pays (expressed in % terms) be either higher or lower than the % rate of return earned by Investor A or Investor B.

(1 Mark)

If the initial price paid by Party A was $980,000 and Party A later sold the T-Bill to Investor B for 990,900, how much interest did Bank of Canada actually pay and to whom did it make the actual cash payment of interest to, Investor A or Investor B or both?

ques2- A $50,000 bond bearing interest at 6.5% bond payable semi-annually matures in 3 years.

If the bond is bought when market rates are at 4.5% compounded semi-annually, what is the purchase price of the bond? Please do calculations of each individual cash flow using the table format used in class. (4 Marks)

Price the same bond using the annuity approach where appropriate. (1 Mark)

c. If market interest rates rise after the bond has been issued, describe what changes, if any, will occur with respect to:

the coupon and principal/face value payments to be made by the issuer of the bond

(1 Mark)

the price or value of the bond? (1 Mark)

What was the total dollars of interest earned by the investor? (1 Mark)

(If you didn't get an answer to a, assume a price of $48,200)

d. What was the effective annual interest rate paid by the borrower? (1 Mark)

e.What was the effective annual interest rate earned by the investor? (1 Mark)