PROMISE I WILL LIKE :)

Assume you have $1 million Cash and are trying to choose among three securities to invest. All are default free fixed income securities.

a. Security A is a Treasury bill with 180 days to maturity with face value of $1,000. It is traded at the price $960 per share.

b. Security B is a U.S. Treasury bill with 90-day maturity and face value of $1,000 per share. It sells at a bond equivalent yield of 3%.

c. Security C is a 20-year maturity bond with par value of $1,000 and the bond makes semi-annual coupon payments at a coupon rate of 10%. The bond is selling at price of $1,100 per share.

Given the above choices, calculate and answer:

i). What is the bank discount yield and bond equivalent yield for security A? (5 Marks)

ii). How many shares of security B you can buy with your $1 million cash? (4 Marks)

iii). What is the Bond Equivalent Yield and Current Yield of Security C? (5 Marks)

iv). Without Considering the risk, Given the above conditions, which one delivers the highest effective yield among the three choices? (You need to show the calculation process to get the full marks) (6 Marks)