1. (0.75 pts.) A $100,000 face value T-bill matures in 75 days and has a Bond Eq
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Question
1. (0.75 pts.) A $100,000 face value T-bill matures in 75 days and has a Bond Equivalent Yield (BEY) of 5.57%. What is the current value (price) of the bond?
2. (1 pts) Suppose there are only three stocks in the market and the following information is given:
Company
Shares Outstanding
Price per Share
A
10 million
$60
B
30 million
$40
C
20 million
$50
2.1 (0.25 pts.) What is the weight of Stock A in the price-weighted index?
2.2 (0.75 pts.) Suppose the current divisor is 2.5. If the next day, stock A undergoes a 2-for-1 stock split, what is the new post-split divisor for the price-weighted index?
Lecture 3 Questions:
3. (0.75 pts.) Tori purchased 500 shares of Flagler Enterprises stock at a price of $25 a share. The initial margin was 60% and the maintenance margin is 35%. After the purchase, the stock price drops to $22. What is the margin now (ignore interest)? Will this trigger a margin call?
4. (0.75 pts.) You invested in stock ABC at $50 per share. The purchase was made with 60% margin at 10% annual interest rate on the borrowing. You sold your shares one year later at $60 per share. What is your holding period return?
5. (0.75 pts.) You short sold stock XYZ at $20 per share at an initial margin of 50%; and collected $200,000 sale proceeds. The broker requires maintenance margin of 30%. If the price increases to $25, would it trigger a margin call?
Do them all and make sure about the answers.
Company
Shares Outstanding
Price per Share
A
10 million
$60
B
30 million
$40
C
20 million
$50
Explanation / Answer
Question 1:
Price of a T- bill (P) is given by:
P = FV ( 1 - dr / 360 )
where r is the discount rate and d is the number of days to maturity and FV is the face value
r = 0.0557
d = 75
FV =100,000
P =100,000*(1-0.0557*75/360) = 98,839.58
Current value (price) of the bond =$ 98,839.58
Question 2:
(a) Price weighted index total value = 60 +50 +40 =150
Weight of stock A on price weighted index = 60/150 = 0.4 =40%
(b) Price weight series before split = (60+40+50)/2.5 = 60
Let the post split divsior be x
(60/2+40+50)/x = 60
(30+40+50)/60 =x
x = 2
New post-split divisor for the price-weighted index = 2
Note: Only one full question can be answered at a time. However, we have answered two full uqestions. Please post the other questions seperately on full question at a time for experts to answer
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