41.A one year Treasury Bill offers a yield of 12 per cent. You anticipate 6 per

Question

41.A one year Treasury Bill offers a yield of 12 per cent. You anticipate 6 per cent inflation The tax rate is 33.3333 per cent. What after tax real return are you anticipating? a. Not more than 3 per cent. b. More than 3 per cent, but not more than 6 per cent. c. More than 6 per cent, but not more than 9 per cent. d. More than 9 per cent 42. The import point is $ 5.10/E 1.00; the U.S. standard is $ 30 per fine ounce; the u.K. standard is E 6.00 per fine ounce. What is the cost of shipping one fine ounce of gold from New York to London or London to New York? a. Not more than $ 0.50 per ounce b. More than $0.50 per ounce, but not more than $ 1.00 per ounce. c. More than $ 1.00 per ounce d. It's a trick question; the shipping cost would have to be negative to numbers work. make the The 1 year Treasury Bill yield is 8 per cent. The bond market expects that the 1 year Treasury Bill yield, one year from now, will be eight per cent. If there are no liquidity premiums, what is the one year forward rate, one year from now 43. a. Greater than eight per cent b. Exactly eight per cent c. Less than eight per cent. d. We need additional information to answer the question. 44. You have purchased 3 stripped Treasury securities. The maturities are 2, 4, and 6 years; the yield to maturity is 4 per cent for all 3 maturities and each will pay $ 100 at maturity What is the duration of your portfolio? a. Not more than 3.75 years. b. More than 3.75 years but not more than 3.85 years. c. More than 3.85 years, but not more than 3.95 years d. More than 3.95 years. 45. A one year Treasury Bill offers a yield of 16 per cent. You require a 5 per cent after tax real return. The tax rate is 25 per cent. What rate of inflation are you anticipating? a. Not more than 3 per cent b. More than 3 per cent, but not more than 6 per cent. c. More than 6 per cent, but not more than 9 per cent. d. More than 9 per cent.

Explanation / Answer

Question No.41

Real Rate = 1+Rate of Return/1+inflation -1

=12(1-0.333)/1.06-1

=(1.08/1.06)-1

=1.89%

Option A is correct

Question No.42.

Exchange Rate per Ounce = $ 30/6 Pound

= 5 Pound

Import Point =5.10 Pound

Shipping cost $ =0.10 Pound *5.10

=$ 0.51

Option B is Correct.

Question No.43

Option B is Correct: Exactly Eight Percent.

Question No.44

Duration = 3.90 years

Option C is correct: More than 3.85 years , but not more than 3.95 Years

Question No.45

Oprion C is Correct. More than 6 Per cent, but not more than 9 per cent.

Year Cashflow PVF @ 4% DCF Proportion Duration 2 100 0.9246 92.46 0.3598(92.46/256.97) 0.72 4 100 0.8548 85.48 0.3326 1.33 6 100 0.7903 79.03 0.3076 1.85 Total 256.97 1 3.90 Years

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