Anna and Clara are considering buying treasury bills. Anna wants to buy a Treasury Bill that has
Question:
Anna and Clara are considering buying treasury bills. Anna wants to buy a Treasury Bill that has a quoted Bond Equivalent Yield equal to 6% and 100 days to maturity. Clara wants to buy a Treasury Bill that has a quoted Bank Discount Yield equal to 6% and 100 days to maturity.
A. What is the effective annual yield on the Treasury Bill purchased by Anna?
B. What is the effective annual yield on the Treasury Bill purchased by Clara?
C. If Anna keeps the Bill till maturity, what would be her holding period return?
D. If Clara manages to sell the bill for $990 after 60 days from the purchase time, what would be her
holding period return?
We want to form an index using the five stocks presented in the below table:
Shares Outstanding (Q0) | Initial Price (P0) | Price at the end of Period 1 (P1) | Price at the end of Period 2 (P2) | Price at the end of Period 3 (P3) | |
Stock A | 50 million | $110 | $130 | $115 | $125 |
Stock B | 40 million | $120 | $120 | $125 | $145 |
Stock C | 30 million | $130 | $110 | $105 | $120 |
Stock D | 20 million | $140 | $100 | $135 | $115 |
Stock E | 10 million | $150 | $90 | $155 | $165 |
Assume each stock preserves the same number of outstanding shares during the three periods.
Q3 = Q2 = Q1 = Q0
A. Calculate the rate of return on a value-weighted (market-capitalization weighted) index for first period (from t = 0 to t = 1)?
B. Calculate the rate of return on an equally weighted index for the second period (from t = 1 to t =2)?
C. Calculate the rate of return on a price-weighted index for the third period (from t = 2 to t = 3)?
D. If now (at t = 0), you invest $10,000 in an index fund that is tracking the performance of the value-weighted index formed from the above five stocks, how much money will you have after one period (at t = 1)?
This problem is to be solved and presented on Excel. From the Bank of Canada website obtain the following data (on excel):
A. 1-Month Treasury Bills Yields at daily frequency from Jan 1, 2015 till Dec 31, 2021.
B. 10-Year Bonds Yields at daily frequency from Jan 1, 2015 till Dec 31, 2021.
C. Draw on the same graph the 1-Month Treasury Bills Yields and the 10-Year Bonds Yields that you have obtained from steps A and B above. What do you observe?
Engineering Economy
ISBN: 978-0132554909
15th edition
Authors: William G. Sullivan, Elin M. Wicks, C. Patrick Koelling