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1.On October 21, 1992 you purchased a $200,000 7 7/8% U.S. Treasury Bond,
Nov. 02-07. The purchase price is on a 105.625 basis with settlement
occurring October 23, 1992. Ignoring transactions fees, calculate the
yield to maturity on this bond purchase.
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2.For the bond transaction described in question # 1, what would be the accrued
interest on the bond as of the purchase date of October 23, 1992?
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3.The discount yield on a 5-day, $100,000 reverse repurchase agreement is quoted
in the market as 9.75%. Calculate the Bank Equivalent Yield (BEY) on this
transaction:
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4. Based on the information provided in question # 3, what would be the
effective annual yield to a financial institution on this reverse repurchase
arrangement?
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5. The manager of a local credit union is in the process of setting rates on
1-year share certificates and on 4-year, fixed-rate auto loans, in which newly
acquired funds will be invested. The yield curve is presently upward
sloping, suggesting that these fixed-rate loans should be priced
carefully. Based on the following information and the pure
expectations hypothesis. What should the credit union charge on a 4-year
auto loan? (Hint: Calculate the expected rates fro future 1-year
certificates first). Assume liquidity premiums equal 0.
Treasury Securities:
Maturity Observed Annual Yield
1
8.05%
2
8.85%
3
9.50%
4
10.05%
Administrative Mark-up: 1.5% per year
Risk Premiums Required for Holding Auto Loans:
Year
1
2%
Year
2
2.5%
Year
3
3%
Year
4
3.5%
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6. The federal agency responsible for setting margin requirements on loans by
securities firms is the:
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7. If the Fed completes an open market operation in which it sells U.S. Treasury
securities then:
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8. The term structure of interest rates at any given time can be observed by
plotting:
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9. You make 10 equal, annual end-of-year deposits of $3,000 to an account paying
7% interest compounded annually. You then increase the size of your
deposit to $6,000 for the next 10 years (10 deposits of $6,000 made at the
end of years 11 through 20). How much will your account hold after you
make your final payment at the end of year 20?
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10. Calculate the value of a semi-annual coupon bond with a face amount of
$1,000, a coupon rate of 6% (the semi-annual interest payment is $30), a
maturity of 12 years and a market yield of 5.5%?
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11. Given the following cash flows, calculate the net present value at a
discount rate of .12:
Year Cash
Flow
0
($8,000)
1
$4,000
2
$7,000
3
$4,000
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12. Given the following probability distribution:
State Probability
Return
Recession
.30 -20%
Normal
.45 10%
Boom
.25 33%
Calculate the standard deviation.
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