Question 1

(a) You buy a 90-day bank bill with a face value of $100,000 at 7.50% p.a.

(i) How much do you pay for it?

(ii) You hold the bill for 30 days and then sell it at a yield of 7.00% p.a. What was

the selling price?

(iii) Calculate the holding period return (yield) for this bill.

(b) (i) Describe the process by which a bankers acceptance is created.

(ii) Why do commercial paper issuers almost always obtain a rating of their issues?

Explain.