Question

What is the price of a money market security with the bond equivalent yield of 5.97%, 99 days to maturity, and a $1000 face value? Round to $0.01.

Answer 1

Formula:- Bond Equivalent Yield= [(Par Value- Purchase Price)/Purchase Price]*365/No.of days to maturity.

Given:-Par value/face value= $1000

Days to maturity=99 days

Bond Equivalent yield= 5.97%

So, to determine the purchase price we put the data in the given formula,

Let purchase price of the security be $ x.

5.97%=[(1000-x)/x]*365/99

or, 5.97%*99/365= (1000-x)/x

or, 0.01619= (1000-x)/x

or, 0.01619x=1000-x

or, 1.01619x=1000

or, x= 1000/1.01619=984.07

Hence, the price of money market security is $ 984.07.