(a) Westpac offers to sell a 90-day negotiable certificate of deposit (NCD) with a face value of 300,000 and a yield of 6.45% per annum. A customer of Westpac just has some surplus funds and is looking to invest it for a short period of time. What is the selling price of this NCD? What is the dollar return that the customer would earn if he purchases it?

(b) A highly rated corporation has issued $1 million of bonds, with a fixed-interest coupon equal to current interest rates of 13 percent per annum, coupons paid half-yearly and a maturity of seven years.

I. When does a bond sell at a discount, premium, and par? What amount would the corporation have raised on the initial issue of the bonds?

II. After one year, yields on identical types of securities have fallen to 12 percent per annum. The existing bond now has exactly six years to maturity. What is the value, or price, of the existing bond in the secondary market?

III. Explain why the value of the bond has changed

(c) I. A semi-annual compounding bond with a face value of $1000. The coupon rate is 7% p.a. and 10 years to mature. Its current market price is $1075. Calculate the YTM of this bond.

II. If you bought this bond and held it for 2 years and then sold it at market yield of 5%, what is the HPV?