Consider a US Treasury Bill with a face value of $10,000.

a. What is the price that an investor has to pay for the bill, if the time to maturity is 1

year and the bill is quoted at an (ask) discount rate of 6%?

b. What is the (annualized) return on investment (yield) that the investor will earn if

the bill is held until maturity?

Pa ge 2 of 2

Suppose that 6 months after purchase the investor considers selling the bill. c. If interest rates are unchanged (i.e. the bill still trades at a discount rate of 6%), what is the net profit/loss since purchase if the investor decides to sell? What is the (annualized) return that the original investor has earned over the 6 months holding period? What is the (annualized) return that the new owner should expect to earn over the remaining 6 months? d. Repeat the calculations of Part c), this time assuming that by the time the bill is sold, interest rates have either increased or decreased by 1% (i.e. the bills discount rate is now 5% or 7%, respectively). Briefly discuss your findings.

Q.5) Consider a US Treasury Bill with a face value of $10,000. a. What is the price that an investor has to pay for the bill, if the time to maturity is 1 year and the bill is quoted at an (ask) discount rate of 6%? b. What is the annualized) return on investment (yield) that the investor will earn if the bill is held until maturity? Suppose that 6 months after purchase the investor considers selling the bill. c. If interest rates are unchanged (i.e. the bill still trades at a discount rate of 6%), what is the net profit/loss since purchase if the investor decides to sell? What is the (annualized) return that the original investor has earned over the 6 months holding period? What is the annualized) return that the new owner should expect to earn over the remaining 6 months ? d. Repeat the calculations of Part c), this time assuming that by the time the bill is sold, interest rates have either increased or decreased by 1% (i.e. the bill's discount rate is now 5% or 7%, respectively). Briefly discuss your findings