ANSWERS TO END-OF-CHAPTER PROBLEMS

ANSWERS TO END-OF-CHAPTER PROBLEMS
1. The price of these T-bills will be based on the average competitive bid and time to maturity. Per $100 of face value, the price is:
P = 100 - discount
= 100 — 100(k)(N/360)
= lOO[1 — (k)(N/360)]
= 100[1 — (.0775)(182/360)]
= 100{.9608l9]
= 96.0819
The total price is $960,819 [$96.08l9 x 10,000].
2. The value of the CD upon maturity is found by applying Equation 2(a).
FV91 = 1,000,000(1.085)91/365
= 1,000,000(1.02054737)
= 1,020,547.37
a. The price at which the CD can be sold when 30 days remain to maturity (price at day 61) is found by applying Equation 2(b).
P61 = 1,020,547.37/[(1 + .09)30/365]
= 1,020,547.37/1.00710824
= 1,013,344.28
b. The rate earned over this 61—day period can be computed by referring to Equation 2(c).
k = (1,013,344.28/1,000,000)365/61 — 1
= .08254945
c. The price yields the buyer a 9 percent return for the 30 days during the CD is held. (See Equation 2(c).)
k = (1,020,547.37/1,013,344.28)365/30 — 1
= .08999999