A. Money Market Instruments

Use the following table to answer questions 1 and 2.
Treasury Bills Treasury bill bid and ask data are representative over-the-counter quotations as of 3pm Eastern time quoted as a discount to face value. Treasury bill yields are to maturity and based on the asked quote.
Treasury Bill	Days to Maturity	Bid	Asked	Chg	Asked Yield
A	120	0.200	0.190	-0.020	0.193
B	150	1.520	1.510	-0.002	1.545
Notes: T-bill A quote is as of April 2020. T-bill B quote is as of November 2019.

1. How much would be the total cost for an investor to purchase Treasury bill A with a par value of $1,000,000? What would be the investors discount rate and the investors bond equivalent yield? Report your answers in the table.

Total cost to purchase:
Discount rate:
Bond equivalent yield:

2. How much would be the total cost for a dealer to purchase Treasury bill B with a par value of $1,000,000? What would be the dealers discount rate and the dealers bond equivalent yield? Report your answers in the table.

Total cost to purchase:
Discount rate:
Bond equivalent yield:

3. Treasury wants to issue $30 billion of 180-day Treasury bills. There are $5 billion of noncompetitive bids and $64 billion of competitive bids. The competitive bids are as follows: $13 billion at 2.75%; $11 billion at 3.50%; $10 billion at 4.00%; $9 billion at 3.25%; $8 billion at 3.00%; $7 billion at 3.75%; and $6 billion at 2.50%. (a) What will be the highest return/rate accepted and paid to all successful bidders? (b) What would be the bond-equivalent yield (investment rates) paid to all successful bidders? (c) What would be the price for the newly issued 180-day Treasury bills and report your answer to six decimal places like the Treasury does? Report your answers in the table.

a. Highest return accepted:
b. Bond equivalent yield:
c. Price to six decimal places:

d. If investors want to insure their bids are accepted, what type of bid should they submit?

4. Assume the U.S. Treasury holds an auction and 98.20 is the price of 182-day T-bills that successful bidders must pay for these bills sold in the primary market. Complete the table

What was the discount rate (highest return accepted and paid to all successful bidders)?
What would be the bond-equivalent yield (investment rate)?

5. What market participant or participants can hold Treasury bills on their balance sheet as a liability?

6. What are some similarities and differences of the fed funds target rate and the LIBOR overnight rate?

7. Using a repurchase agreement, a commercial bank borrows $40 million for five days at the LIBOR overnight rate. If the LIBOR overnight rate is 3.35% and does not change, how much interest must the commercial bank pay the counterparty?