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15. Refer to the attached excerpts from the Wall Street Journal, to answer the following questions:...

15. Refer to the attached excerpts from the Wall Street Journal, to answer the following questions: (the excerpts show the closing prices as of Thursday January 23, 2020 and Wednesday April 1, 2020).

A. You purchased a T-bill on Thursday January 23, 2020 which matures on July 30, 2020. Determine the purchase price of the T-bill (how much you paid for it). Use the excerpt of January 23 to get the price

B. On Wednesday April 1, 2020, you sold the same T-bill (which has the same maturity on July 30). Use the excerpt of April 1, 2020 to get the price

a. Determine the selling price of the T-bill (how much you received for it).

b. Determine the holding period rate of return (HPR) on this investment.

c. Determine the Annual Percentage rate of Return (APR) on this investment.

d. Determine the Effective Annual Rate of Return (EAR) on this investment.

Thursday, January 23, 2020

Treasury Notes & Bonds

Treasury note and bond data are representative over-the-counter quotations as of 3pm Eastern time. For notes and bonds callable prior to maturity, yields are computed to the earliest call date for issues quoted above par and to the maturity date for issues below par.

Maturity Date	Coupon Rate	Bid Price	Asked Price	Change	Asked yield
1/31/2024	2.500	103.2320	103.2360	0.0260	1.536
2/15/2024	2.750	104.2460	104.2520	0.0300	1.529
2/29/2024	2.125	102.1020	102.1060	0.0280	1.535
2/29/2024	2.375	103.1000	103.1040	0.0300	1.534
3/31/2024	2.125	102.1160	102.1220	0.0320	1.535
4/30/2024	2.000	101.2820	101.2860	0.0280	1.538
4/30/2024	2.250	102.2900	102.2940	0.0280	1.540
5/15/2024	2.500	103.3120	103.3160	0.0320	1.538
5/31/2024	2.000	101.2940	101.3000	0.0300	1.538
6/30/2024	1.750	100.2800	100.2840	0.0340	1.541
6/30/2024	2.000	101.3000	101.3040	0.0340	1.543
7/31/2024	1.750	100.2860	100.2920	0.0320	1.540
7/31/2024	2.125	102.1600	102.1640	0.0300	1.547
8/15/2024	2.375	103.1960	103.2020	0.0320	1.547
8/31/2024	1.250	98.2220	98.2260	0.0280	1.541

U.S. Treasury Quotes

Wednesday, April 01, 2020

Treasury Notes & Bonds

Treasury note and bond data are representative over-the-counter quotations as of 3pm Eastern time. For notes and bonds callable prior to maturity, yields are computed to the earliest call date for issues quoted above par and to the maturity date for issues below par.

Maturity	Coupon	Bid	Asked	Change	Asked yield
12/31/2023	2.625	108.1760	108.1820	-0.0280	0.318
1/31/2024	2.500	108.0840	108.0900	-0.0120	0.322
2/15/2024	2.750	109.0900	109.0940	-0.0060	0.331
2/29/2024	2.125	106.3040	106.3100	-0.0080	0.330
2/29/2024	2.375	107.3000	107.3040	-0.0120	0.326
3/31/2024	2.125	107.0260	107.0320	-0.0040	0.334
4/30/2024	2.000	106.2200	106.2240	0.0040	0.343
4/30/2024	2.250	107.2360	107.2420	unch.	0.333
5/15/2024	2.500	108.2560	108.2620	unch.	0.341
5/31/2024	2.000	106.2660	106.2720	-0.0040	0.340
6/30/2024	1.750	105.2920	105.2960	0.0080	0.342
6/30/2024	2.000	106.3060	106.3120	0.0140	0.343
7/31/2024	1.750	106.0060	106.0120	0.6900	0.344
7/31/2024	2.125	107.1920	107.1960	0.0120	0.351
8/15/2024	2.375	108.2460	108.2520	0.0100	0.347
8/31/2024	1.250	103.3040	103.3100	unch.	0.343

Expert Solution

** Since the quotes are given for securities maturing in 2024 we will take T-bill maturity date as July 31, 2024 (or 7/31/2024)

Whenever we buy a security we pay ask price for it

As per quotes on January 23, 2020

7/31/2024	1.750	100.2860	100.2920	0.0320	1.540
7/31/2024	2.125	102.1600	102.1640	0.0300	1.547

The two price in bold are the ask price for the security. We assume we get to buy at average of this price

(A) Purchase price of T-Bill = (100.2920+102.1640)/2 = 101.228

Whenever we sell a security we get bid price for it

As per quotes on April 01, 2020

7/31/2024	1.750	106.0060	106.0120	0.6900	0.344
7/31/2024	2.125	107.1920	107.1960	0.0120	0.351

The two price in bold are the bid price for the security. We assume we get to sell at average of this price

(B)a Selling price of T-Bill = (106.0060+107.1920)/2 = 106.599

(b) Holding period return = (Sell price - buy price)/buy price = (106.599-101.228)/101.228 = 0.05306 = 5.306%

(c) To determing the annual percentage rate (APR), we need to calculate the no. of days we have held the security

January 23 to April 1

9 days in Jan (23,24,25,26,27,28,29,30,31) + 29 days in Feb + 31 days in March + 0 days in April (since we sell it on April 1, therefore it is not included) = 69days

Let r be the APR

Selling Price = Buying Price * (1 + r * 69/365)

106.599 = 101.228*(1+r*69/365)

or r = 0.28067 = 28.067%

(d) Effective annual rate (EAR). Let EAR = r

Selling price = buying price* (1 + EAR)^(days/365)

106.599 = 101.228*(1+r)^(69/365)

r = 0.3145 = 31.45%

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