On April 28, 2020, an investor is considering an investment opportunity. He has determined that his investment horizon (i.e. the investment holding period) is only 90 days.

A negotiable certificate of deposit with a face value of $100,000 issued on January 2, 2020 has a term to maturity of 270 days. The investor can purchase this CD in the money markets on April 29, 2020, which is 117 days after the issue date. The yield on April 29, 2020 is 3.25%, and is expected to increase to 4.50% at the end of the investor's investment horizon.

What is the yield to the investor if he chooses this Investment ?

Select one:

a.None of the choices are correct

b.5.07%

c.2.87%

d.0.58%

On September 1, 2020 an investor purchases a $10,000 face value debenture that matures in 12 years. The coupon rate is 6% and the investor buys the debenture 70 days after the last coupon payment (110 days before the next). The yield is 7%. The price of the debenture is :

Select one:

a.$10097.08

b.$10915.95

c.10400.64

d.$9320.95

XYZ Limited is planning an expansion of its Australian operations in three months' time (90 days). In order to fund this investment, XYZ will need to borrow $25 million through the issue of commercial paper for six months (180 days). The CFO believes that interest rates will fall over the next three months, but recent poor profitability means that the company is under pressure to obtain funding at no worse than the current yield. (use 365 days in a year)

You have access to the following yield data:

Instrument

Today

3-months

Commercial paper

6.00%

7.25%

180-day bank-accepted bills futures contract

93.75%

92.50%

Calculate the effective cost of funds achieved with this hedging strategy

Select one:

a.8.501%

b.6.003%

c.6.501%

d.6.020%