I am currently reviewing this solution and am completely lost. The main question I have is how do you get a CD yield of 20% for question 3? And what would the yield be for the Bankers Acceptance? Are the solutions accurate?

1.If you purchase a T-Bill at a 3.20 discount with 80 days left to maturity, what is the price you will pay for this security?

Discount = 3.20

Days to maturity = 80

Calculating the purchase price of the T-bill;

Step 1; Multiply rate of discount by the number of days to maturity

3.20 * 80

= 256

Step 11; divide 256 by 360

= 0.7111111111

Step 111; subtract the result from 1

1 - 0.7111111111

= 0.288888889

Step 1v; multiply the result by 1000

0.288888889 * 1000

= 288.9

Price of the security = $288.9

2.You just bought a Bankers Acceptance with 165 days left to maturity. If you paid 98.360, what is the annual discount rate?

Discount rate = (F - P)/ F * 360/n

Where; F = Face valueF = $1000

P = PriceP = 98.360

n = days to maturityn = 165

Discount rate = (1000 - 98.360)/ 1000*360/165

= 1.97%

3.What is the CD equivalent yield on the BA in problem 2?

Equivalent yield = (face value - price)/price* 360/165

= (1000 - 98.360)/98.360* 360/165

= 20%

4.What is the bond equivalent yield on the T-Bill in question 1

Equivalent yield = (face value - price)/price* 360/80

= (1000 - 288.9)/288.9* 360/80

=11%

5.How much interest would you earn on a 3 day Repo for $1500000 at a rate of 2.35%?

Interest earned = face value - the price

Price of the repo = $1200000

Face value $1500000

Interest earned = (1500000=1200000)

= $300 000

6.XYZ Corporation issued a 10 year bond two years ago with a 5.75% coupon at par. If the current required return on this bond is 4.35%, what is the price of this bond?

Price of a bond = c * f * (1-(1+r)^-t / r) +f/(1+r)^t

= 5.75% * 1000 ((1 - (1+4.35%)^-8) / 4.35%) +1000(1+4.35%) ⁸

= $787.4

7.Using all of the data from question #6, what would be the yield to call if this bond was called at the end of 5 years at a price of the coupon + par?

Call price = $1000 + 0.0575*1000 +=1057.5

Yield to call= 0.0435+ ((1057.5 - 787.4)/5) = 54.0435

=(1057.5 + 787.5)/2 = 922.45

= 54.0435/922.45

=0.05%

8.A bond is selling for a dollar price of 97.635. If this bond has an original maturity of 10 years, has been in the market for 18 months, and has a 4.50% coupon, what is the current required return?

Price = c * f * (1-(1+r)^-t / r) +f/ (1+r) ^t

97.635 = 4.5% * 1000 (1 - (1+r)^-8.5 / r) + 1000(1 + r) ^8.5

=18.42%

9.If the bond in 8 were to remain in the market for 18 more months and rates on similar securities fell by 200 basis points, what would be the bond's new price?

Rates fell by 200 basis points. Therefore the new rate should be 6.8%

3 years. (10 -3) = 7years.

Price of the bond = c * f * (1-(1+r)^-t / r) +f/ (1+r) ^t

= 4.5% * 1000(1-(1+0.068)^-7 / 0.068 + 1000(1 + 0.068)⁷

= $932.89