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1. T-Bill Yield Assume an investor purchased a six- 58.816.60. Given that the security has a maturity of month T-bill with a $10,000 par value for $9,000 and two years, what is the investor's required rate sold it 90 days later for $9,100. What is the yied? of return? 2. T-Bill Discount Newly isued three-twonth T-bills 8. Effective Yield A US. investor obtains British with a par value of $10,000 sold for $9,700. Compute pounds when the pound is worth $1.50 and invests in a the T.bill discount. one-year money market security that provides a yield 3. Commercial Paper Yield Assume an investor of 5 percent (in pounds). At the end of one year, the purchased six-month commercial paper with a face investor converts the proceeds from the investment value of $1 million for $940,000. What is the yicld? back to dollars at the prevailing spot rate of $1.52 per 4. Repurchase Agreement Stanford Corporation pound. Calculate the effective yield. arranged a ropurchase agreement in which it purchased 9. T-Bill Yield securities for $4.9 million and will sell the securities a. Determine how the annualined yield of a T-bill back for $5 million in 40 days. What is the yield (or would be affected if the purchave price were lower. repo rate) to Stanford Corporation? Explain the logic of this relationship. 5. T-Bill Yield You paid $98,000 for a $100,000 b. Determine how the annualired yield of a T-bill T.bill maturing in 120 days. If you hold it until matuwould be affected if the selling price were lower. rity, what is the T-bill yield? What is the T-bill Explain the logic of this relationship. discount? C. Determine how the annualired yield of a T-bill 6. T-Bill Yield The Treasury is selling 91-day T-bills would be affected if the number of days were reduced. with a face value of $10.000 for $9.900. If the invetor holding the purchase price and selling price constant. holds them until maturity, calculate the yield. Explain the logic of this relationship. 7. Required Rate of Return A money market 10. Return on NCDs Phil purchased an NCD a year security that has a par value of $10,000 sclls for ago in the secondary market for $980,000. The NCD Chapter 6: Money Markets 161 matures today at a price of $1million, and Phil considering the purchase of a newly issued threereceived $45,000 in interest. What is Phils return on month T-bill expects intercat rates to increase within the NCD? the neat three months and has a required rate of teturn 11. Return on T-Bills Current T-bill yiclds are of 2.5 percent. Hased on this information. how much is approximately 2 percent. Asume an investor this investor willing to pay for a three-month T-bill? 1. Forward Rate 2 percent foday; 4 percent one yrar from now, and a. Asume that, as of todey, the annualined two-yrar 6 percent two years frum ner.. Uulng anly jure interest rate is 13 percent and the ene-yrat interest cepectations theory, what are the carrent intered rate is 12 percent. Uhe this information to eatimate the rates on twe yeat and thene-yrat secarities? one-yeat fonmard rate. 6. Commercial Paper Yield b. Asume that the liquality ptrmiam en a twe-yrat a. A cocporation is planning to acll its 90 -day comsecurity is 0.3 percent. Use thil information to mercial paper to investors by ofiering an 8.4 percent catimate the obe-yrar formard rate. yeld. If the three-month T-bill's annualued rate is 2. Forward Rate Asume that an of foday, the 7 percent, the default riak premiam in estimated to be annualiasd intercat rate on a three-year mecurity is a. 6 percent, and there is a 0.4 persent tax adjuatment. 10 percent and the anncalined interest rate on a twothen what in the appropriate liquadity pecminan? year security is 7 percent. Use this intormation to b. Suppeae that, because of uncepected changrs in eatimate the onevyear formard rate two years from now. the econctny, the default risk premium increaies to 3. Forward Rate If py>. da what is the market 0.8 percent. Aauurning that no ocher changes occur. censcasas furecast about the one-year forward rate one what is the appropriate yield to be offered on the yrar from now? Is this rate abone of below today's anecomimincial pager?? yrar interest rate? Explain. 7. Forward Rate 4. After-Tax Yield You nend te choose betwecn a. Detrrmine the forward rate for various one-year imsating in a one-yrar muanicipal bond with a 7 percent interet rate scenarion if the two-yrar intereat rate is yeld and a ene-yrar corporate bond with an 11 percent 8 percent, asiuming no liquidity premium. Euplain the yield. If your marginal federal incume tux mate is riationaip betwoen the one-ynar interest rate and 30 percent and no other differences eaid between the ene-year forward rate while hilding the two-year thene taro iecurities. which would you imest in? interest rate constant. 5. Deriving Current Interest Rates A mume that b. Detcrinine the one-year formard rate for the aume interest rates for ene-year aecurities afe espected to be. ane-year intereat tate acenarios dekcribed in quevtion 74. Part it Overview of the financiat fivironment (a) inhile asumining a liquality premaium of 0.4 percent. 8. After-Tax Yieid Determine how the afticf-tas Does the relationihip between the ose-year interest rate and the Sorward rate change when the licquidey yicld from investing in a corporate bond is affected by premium is considercd? hapher tax rates, heiding the before-tax yield conatant. Explain the logic of this relationsipip. c. Determine how the oee-yrar forward rate mould be 9. Debt Security Yield atfectid if the quoted two-yrat internt rate rives hold a. Determine hime the appropriate yield to be offered comitant the quoted ane-year internt rate an mell as the eo a security is afficeted by a higher riak-frex rate. liqraldity premium. Explain the leges of this relationsip? Fxplain the loge of this redetionahip. d. Determine how the one-year forieard rate would be affieted if the liquidity premium rises and if the b. Determine hom the apreppriate yield to be offered quoted eneyear interest rate is hold coenstant. What if . on a mecuarity is affected by a higher default riak prethe quoted two-ycar interest rate is held constant? Explain the logic of this relationstup