Question

# 10 A) An investor buys a T-bill at a bank discount quote of 4.80 with 150...

10 A) An investor buys a T-bill at a bank discount quote of 4.80 with 150 days to maturity for \$9800. The bill has a face value of \$10,000. The investor's bond equivalent yield on this investment is _____. Multiple Choice 4.8% 4.97% 5.47% 5.74%

10)B A T-bill quote sheet has 90-day T-bill quotes with a 4.92 ask and a 4.86 bid. If the bill has a \$10,000 face value, an investor could sell this bill for _____. \$9,880.16 \$10,000 \$9,878.50 \$9,877.00

A)

Calculating Bond's equivalent yield:-

Bond's equivalent yield = [(Face value - Price)/Face value]*(360/no of days)

where,Face value = \$10,000

price = \$9800

no of days = 150

Bond's equivalent yield =[(\$10,000 - \$9800)/\$10000]*(360/150)

Bond's equivalent yield = 4.80%

Option 1

B). Face Value = \$10,000

Calculating the Price of Bill using bid discount rate as customer wants to sell:-

Price = Face Value[1-(Bid discount Yield*no of days/360)]

Price = \$10000*[1-(0.0486*90/360)]

Price = \$9878.50

Option 3

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