Question: Consider a U . S . Treasury Bill with a face value of $ 1 0 0 and 2 7 0 days to maturity. If

Consider a U

.

.

Treasury Bill with a face value of $

100

and

270

days to maturity. If the

annual yield is

3.8

percent, what is the price?

Calculate the yield to maturity for each of the following one

-

year coupon bonds. All three

bonds have a face value of $

100 .

Explain why the first bond has the highest yield to maturity

despite having the lowest coupon rate.

.

6

percent coupon bond selling for $

85 .

.

7

percent coupon bond selling for $

100 .

.

8

percent coupon bond selling for $

115 .

You are considering purchasing a consol that promises annual payments of $

4 . (

2)

.

If the current interest rate is

5

percent, what is the price of the consol?

.

You are concerned that the interest rate may rise to

6

percent. Compute the percentage

change in the price of the consol and the percentage change in the interest rate. Compare

them.

.

Your investment horizon is one year. You purchase the consol when the interest rate is

5

percent and sell it a year later, following a rise in the interest rate to

6

percent. What is

your holding period return?

Consider a U.S. Treasury Bill with a face value of $100

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