Notes: everything need to be done on Excel Problem 1: Consider a 5-year principa

Question

Notes: everything need to be done on Excel

Problem 1:

Consider a 5-year principal strips with par $200,000. Assuming semiannual compounding, what is the price of this principal strips if the YTM is 5.75%? If the marginal tax rate is 35%, what is the total present value of the tax payments? (Note: Although assuming semiannual compounding, the tax payments are calculated every year.)

Problem 2:

Consider the bidders (A through I) in the following table. Assume the total issue after noncompetitive tenders and nonpublic purchases is $700 million.

(1) Create a new table to reorder the bidders from the lowest bid yield to the highest bid yield.

(2) How to allocate the amount of issue to the bidders?

(3) If the Dutch auction is conducted, what is the bid yield (also called “high yield”) of the auction?

Bidder Amount ($ millions) BId A 150 5.35% B 70 5.40% C 150 5.20% D 200 5.15% E 80 5.25% F 100 5.30% G 250 5.50% H 100 5.35% I 120 5.35%

Explanation / Answer

Notes: everything need to be done on Excel Problem 1: Consider a 5-year principa

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