Question

1) you purchased a $1,000 par with T-bill 149 days to maturity for $962.71. you then sold this T-bill when it had 63 days to maturity for $988.27. What is your holding period of return?

2) What is the price of a money market security with the bond equilvalent yield of 8.2%, 145 days to maturity, and a $1000 face value?

3) you purchase a treasury inflation-protected note with an original principal amount of $100,000 and a 3% annual coupon (paid semiannually). What will the first coupon payment be if the semiannual inflation over the first 6 months is 1.69%?

Answer 1

Ques 1).

Holding period return = (selling price - buying price)/buying price = (988.27 - 962.71)/962.71 = 2.655%

Ques 2). We know that bond equivalent yield = (FV-price)*365/(Price*days to maturity)

So, 0.082 = (1000-Price)*365/(Price*145) => Price = $968.45

So, price of a money market security is $968.45

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