Question: Question 1 (20 marks) A 98-day T-bill (Face value: $10,000) was quoted with a 3.86% bid and a 3.83% ask rates. (a) At what

Question 1 (20 marks) A 98-day T-bill (Face value: $10,000) was quoted

Question 1 (20 marks) A 98-day T-bill (Face value: $10,000) was quoted with a 3.86% bid and a 3.83% ask rates. (a) At what price can you buy this T-bill? (b) What is the bond equivalent yield of your T-bill investment? (c) Prices of zero-coupon bonds reveal the following pattern of interest rates: Years from now 1-year interest rate 0 5.2% 1 2 7.3% 8.6% (5 marks) (5 marks) Calculate: i) 3-year interest rate on today. ii) 1-year forward rate 3 years from now if 4-year interest rate on today is 7.8%. (10 marks)

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