Refer to the following two money market instruments: i. a 60 day $10,000 CD (add on) quoted at 6% interest, and; a 180 day $10,000 T-bill (discount) quoted at 5.9%. Calculate the initial price (PO) and face value (Pf) of the two instruments. Calculate the bond equivalent yield of the two instruments. Which instrument pays a higher bond equivalent yield? (d) In general, the market price of a T-bill is more volatile than a comparable CD in the secondary markets? Explain why this is true. ii. (a) (b)
Refer to the following two money market instruments: i. a 60 day $10,000 CD (add on) quoted at 6% interest, and; a 180 day $10,000 T-bill (discount) quoted at 5.9%. Calculate the initial price (PO) and face value (Pf) of the two instruments. Calculate the bond equivalent yield of the two instruments. Which instrument pays a higher bond equivalent yield? (d) In general, the market price of a T-bill is more volatile than a comparable CD in the secondary markets? Explain why this is true. ii. (a) (b)
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter4: Bond Valuation
Section: Chapter Questions
Problem 19P
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