Question

1.

What is the price of a money market security with a discount yield of 3.59%, 146 days to maturity, and a $1000 face value? Round to $0.01.

2.

What is the price of a money market security with the bond equivalent yield of 7.12%, 71 days to maturity, and a $1000 face value? Round to $0.01.

3.

You purchased a $1,000 par with T-bill 172 days to maturity for $973.44. You then sold this T-bill when it had 79 days to maturity for $992.73. What is your holding period return? Report your answer in % to the nearest 0.01% but do not include % symbol in answer, e.g., enter 3.95% as 3.95. (Note: It's possible for HPR to be negative.)

Answer 1

1. What is the price of a money market security with a discount yield of 3.59%, 146 days to maturity, and a $1000 face value?

Price of a money market security = F/ (1+i) ^n

Where,

Price of a money market security =?

Face value or Maturity value of price of a money market security F = $1,000

i = discount yield = 3.59% per year

And time period for maturity n = 146 days or (146/360) year [360 days convention is used for discount yield]

Therefore

Price of a money market security = $1,000 / (1+3.59%) ^ (146/360)

= $ 985.80

2. What is the price of a money market security with the bond equivalent yield of 7.12%, 71 days to maturity, and a $1000 face value?

Price of a money market security = F/ (1+i) ^n

Where,

Price of a money market security =?

Face value or Maturity value of price of a money market security F = $1,000

i = Bond equivalent yield = 7.12% per year

And time period for maturity n = 71 days or (71/365) year [365 days convention is used for bond equivalent yield]

Therefore,

Price of a money market security = $1,000 / (1+7.12%) ^ (71/365)

= $ 986.71

3. You purchased a $1,000 par with T-bill 172 days to maturity for $9744. You then sold this T-bill when it had 79 days to maturity for $992.73. What is your holding period return? Report your answer in % to the nearest 0.01% but do not include % symbol in answer, e.g., enter 3.95% as 3.95. (Note: It's possible for HPR to be negative.)

Holding period return = (P1 –P0) / P0

Where,

P0 is the purchased price of a $1,000 par with T-bill 172 days to maturity = $973.44

P1 is the selling price of this T-bill when it had 79 days to maturity = $992.73

Therefore,

Holding period return = ($992.73 - $973.44)/$973.44

= $19.29/ $973.44

= 0.0198 or 1.98%