Assume that interest rate on a 182-day, $10 million face value, T-Bill is currently selling at a discount rate of 4.50%.

- What will be the price of the T-Bill today? What is the holding period return of the T-bill?

- Assume a borrower is given the following options for payment on a $10,000,000 loan. Show the payments for both options.

1) 5-year amortizing loan paying annual interest rates of 10%. What is the total interest and principal pad in year 4?

2) 5-year loan with no interest or principal payments for years 1-2. Interest will continue to accrue during the first two years. Thereafter, principal payments of $2 million will be made in years 3 and 4 and all remaining principal in year 5.In years 3-5, total payments should include interest and principal.Assume an interest rate of 10% for the entire period.

- A firm borrows 5-year 10-million from a bank at a floating rate of Libor+2%. The interest is paid at the end of the year based on Libor at the beginning of the year. The Libor today (period 0) is 6%. If the Libor in the beginning of years 1-4 are 5.5, 4.0, 3.5 and 3.0 percent, respectively, show the payments for all five years.Ex-poste, would the firm have been better off if they had borrowed at a fixed rate of 6.0%? Use the present value of both cash flows at 6% to determine your answer.

- What is the Fisher effect and explain the relationship between real rates and expected inflation rates?