(i) What is the approximate annualized yield on a 6-month Treasury bill that is sold at £99 in the primary market? Show your calculations.

(ii) A 10-year Treasury bond (TBOND1) is sold on the market one day at 3100 with an annual coupon of £7. The following day bad news hits the global stock markets and a new 10-year Treasury bond (TBOND 2) is sold on the market at a £5 annual coupon. What is the approximate new secondary market price of TBOND1? Show your calculations.

(iii) In a world where interest rates are rising and in your view are likely to continue to do so would you prefer to buy or short government bonds? Which would you be more likely to buy or short 5 years bonds or 20-year bonds? Explain your reasoning.

Answer rating: 100% (QA)

i Yield 100 1r05 99 1r05 10099 1r05 10101 r 10101105 1 r 00203 or ... View the full answer