1 que: valuing t-bills A treasury bill issued by the canadian government with 86

Question

1 que: valuing t-bills A treasury bill issued by the canadian government with 86 days to maturity is trading to yield 3.69 percent .For $1,000 of par value ,what is the maximum amount you should pay for the t-bill? why?
2 que: Valuing t-bill A major investment dealer just purchased $300 millions of 364 day treasury bills from the Bank of Canada.The investment dealer paid $287,631,317.50 for the bills.
a. What is the yield on these t-bills?
b. If the investment dealer can sell these t-bills to other investors in the secondary market at an average yield of 4.11 percent,how much money will the investment dealer make on their purchase of $300 million of t-bills from the bank od canada?

Explanation / Answer

1.   Yield to maturity on the treasury bill is 3.69%.    Power value of the treasury bill is $1,000             Here the treasury bill maturtiy is in days i.e., 86 days.             Then the yield to maturity in days is = 3.69%/365                                                                  =0.101             Interest on this treasury bill per day is = $1000*0                                                                       =0             By using spread sheet, we would use Pv function , Inputting Nper = 85             Pmt = 0, Fv = 1000, Rate = 0.0101%             By entered, then we can get the market value of the bond.             Market value of the bond   = $991.35                                The maximum amount pay on this treasury bill is $991.35.Treasury bill currently market price is $991.35. We would pay the amount on bonds how much value it has in market. Depending on this the maximum value payable on this treasury bill is $991.35. 2.    a.          By using the Spred sheet. Rate function.          Inputting Nper = 364/365, Pmt = 0 , FV = 300,000,000, PV = - 287,631,317.50 .                Then the rate = 4%          Therefore the Yield on these t bills is 4%    b.          Here we have to find out the value of the bond.          By using spread sheet PV funtion, Inputting Npvr =364/365, Pmt = 0.           Rate 4.11%,    FV=300000000, then PV is =$288,188,557.20.                       The purchase of money made on Canada od is $288,188,557.20           

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