1) Describe the T-bill auction process. 2) What is the discount yield, bond equi

Question

1) Describe the T-bill auction process.

2) What is the discount yield, bond equivalent yield, and effective annual return on a $1 million Treasury bill that currently sells at 97 3/8 percent of its face value and is 65 days from maturity?

3) What are capital markets, and how do bond markets fit into the definition of capital markets?

4) A $1000 face value corporate bond with a 6.75 percent coupon (paid semiannually) has 10 years left to maturity. It has a credit rating of BB and a yield to maturity of 8.2 percent. The firm recently became more financially stable and the rating agency is upgrading the bonds to BBB. The new appropriate will be 7.1 percent. What will be the change in the bond's price in dollars and percentage terms?

5) Why are mortgage markets studied as a separate capital market?

6) You plan to purchase a $100,000 house using a 30-year mortgage obtained from your local credit union. The rate offered to you is 8.25 percent. You will make a down payment of 20 percent of the purchase price.

a. Calculate the monthly payments on this mortgage

b. Calculate the amount of interest and, separately, principal paid in the 25th payment.

c. Calculate the amount of interest and, separately, principal paid in the 225th payment.

d. Calculate the amount of interest paid over the life of this mortgage.

Explanation / Answer

Treasury auctions are designed to minimize the cost of financing the national debt by promoting broad, competitive bidding and liquid secondary market trading. the auction process

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