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Question 5: A $100 T-bill (recall that a T-bill is a government bond that pays the face value, $100 in this case, at time of
Question 5: A $100 T-bill (recall that a T-bill is a government bond that pays the face value, $100 in this case, at time of maturity, and has no coupon payments) is selling at an annual continuously compounding yield rate of 2.3%. a) What is the effective annual yield rate assuming yearly compounding? b) What is the price of the T-bill if it matures in 6 months? c) What is the price of the T-bill if it matures in 9 months? d) If the continuously compounding yield rate drops by 30 basis points (i.e. from 2.3% to 2%) how does the price of the bond change in b and c
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