Question

The bond equivalent yield of a 180-day banker’s acceptance quoted at a discount rate of 4.25% for a 360-day year is closet to:

a) 4.31%

b) 4.34%

c) 4.40%

d) none of the above.

16. A fixed-coupon bond has a Macaulay Duration of 10. Which of the following could possibly be the bond’s Modified Duration?

a) 10.50

b) 15

c) 8

d) none of the above

Answer 1

Ans 1

present value of banker's acceptance

PV = FV x [(1?D/Y) x r]

PV = present value

FV = future value paid at maturity = $100

D = number of days between settlement and maturity = 180

Y = number of days in the year = 360

r = discount rate = 4.25% = 0.0425

PV = $100 x [(1?180/360) x 0.0425]

PV = $100 × (1 - 0.02125)

PV = $100 × 0.97875

PV = $97.875

bond equivalent yield = (Y/D) x [(FV?PV)/(PV)]

=(365/180) x [(100?97.875)/(97.875)]

= 2.02778 × 0.02171

= 0.04402

= 4.40%

Option C is the correct answer