Question 1

Assume an investor purchased a six-month T-bill with a $10,000 par value for $9,100 and sold it 90 days later for 9,400.

• What is the yield? Note: 365 days
• What would be the discount if instead of selling it, the investor keeps the T-bill until maturity? Note: 360 days

Question 2

• An investor expecting a yield of 12.12% wants to purchase 30-days commercial paper with a par value of $1,000,000. How much should she pay for it? Note: 360 days
• A firm plans to issue 90-day commercial paper with a par value of $5,000,000. It expects to sell it it for $4,850,000. What is the yield the company is expected to pay investors? If you are the CFO of this company would you prefer to sell your commercial paper at a higher or a lower price? Why?

Question 3

• Suppose that you know that a company just paid a dividend of $3.5 per share on its stock and that the dividend will continue to grow at a rate of 8% per year. If the required rate of return on this stock is 14%, what is the current share price?

Question 4

• Your portfolio returned 15% last year, 2% better than the market. Your portfolio had a standard deviation of 18%, and the risk-free rate is equal to 3%. Calculate your portfolio's Sharpe's ratio. If the market Sharpe's ratio was 0.45, did you do better or worse than the market from a risk-return perspective?