Question

You buy a 180-day bank-accepted bill (BAB)with a face value of $100,000 at the yield of 6.50 per cent per annum.

a)What price would you pay for the bill now?

After 32 days,you sell the bank bill for $95,500.00.

b)What is your holding period yield?

Part 2

Examine two reasons why an investor may prefer bonds rather than shares when deciding to invest.

Answer 1

a. $ 96900.32

b. -0.1284%

part 2

Why bond preferred more than shares :-

1. Bec of the risk factor - Bonds are less risky than stocks and if held to maturity ,can provide consistent and stable return.Though they provide lower return than stock bec of low risk factor but in case when stocks are declining ,interest rate falls and thus bond price increases and in such case ,bonds are preferred more than stock.

2.Bond is debt and stock is equity . In case of bankruptcy ,debtholders are paid over shareholders. Thus bondholders get atleast something in worst case .