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Ivanthedumbfck

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1. Government of Alberta 364-day T-bills with a face value of $1,000,000 were purchased on April 7 for $971,578. The T-bills sold on May 16 for $983,500.


a. What was the market yield rate on April 7?
b. What was the market yield rate on May 16?
c. What was the rate of return realized?

I got a.) 971578= 1,000,000/1+r(364/365) r=2.93%. I'm having trouble getting b and c. Thx :D

The final answers are a. 2.93% b. 1.88% c. 11.48%
 
The answer to b is the same kind of equations as with a but with the numbers for May 16th. That is, the market value of the T-bills was $983,500 and the face value was still $1,000,000 but the holding period has changed by the elapsed time.

For the answer to c, do you know what a rate of return is? Basically it is how much you made (lost) on a yearly basis, normalized by how much you invested.
 
Ishuda said:
The answer to b is the same kind of equations as with a but with the numbers for May 16th. That is, the market value of the T-bills was $983,500 and the face value was still $1,000,000 but the holding period has changed by the elapsed time.

For the answer to c, do you know what a rate of return is? Basically it is how much you made (lost) on a yearly basis, normalized by how much you invested.
Click to expand...

so for b.) it's 983,500=1,000,000/1+r(364/404)? I got 1.86%

and for c.) I'm still struggling. I got 983,500-971,578=11922/how much you invested(971,578).
 
Ivanthedumbfck said:
The answers b and c are correct according to my professor. I did all the calculations and the answers are not right.
Click to expand...
1. Government of Alberta 364-day T-bills with a face value of $1,000,000 were purchased on April 7 for $971,578. The T-bills sold on May 16 for $983,500.

a. What was the market yield rate on April 7? - correct.
b. What was the market yield rate on May 16?
On April 7 the T-bills had a 364 day holding period, on May 16 (39 days later) the T-bills had a holding period of 325 days. The market value on May 16 was 983, 500. So, as in a,
983500 = 1000000 /(1 + r * (325/365) )
or r = 1.88% to two decimal places

c. What was the rate of return realized?
You bought at $971578 and sold at $983500. So, your profit was $11922 and for every dollar you invested your (normalized) profit was
11922/971578 = 0.0122707595272845
You held this 39 days and, if you had held it for a year yor rate of return would be
r = 0.0122707595272845 *(365/39) = 11.48% to two decimal places

Fill in the blanks or highlight for the answer if you are stuck.
 
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