Exercise 1
Repo versus money market alternatives
Rank the following money market instruments in order of highest return.
a. A 12-month $ certificate of deposit (CD) paying interest at maturity at a rate of 7.25%, accruing on an act/360 basis.
b. A 12-month PTE domestic term repo paying 7.27%, accruing on an act/365 basis.
c. A 12-month $ repo paying interest quarterly at a rate of 7.20%, accruing on an act/360 basis.
d. A Spanish bono with 1 year to maturity, a coupon of 11.00% and a price of 103.16 (accruing at act/act).
e. A UK 1-year T-bill offered at a discount rate of 7.125%.
Exercise 2
Bond basics
A UK Government bond with a coupon of 121 will be redeemed at par on 15 May 2007. What is the price of the bond on 16 May 1998 if the yield to maturity is 9%?
If the semi-annual yield to maturity of a bond is 12.38%, what is:
a. The equivalent annual yield to maturity?
b. The equivalent quarterly yield to maturity?
The yield on a UK Government bond is 11.5% while the yield on a sterling eurobond is 11.75%. Which paper is offering the better return?
Exercise 3
A trader wishing to finance his long bond position will effect a:
a. reverse repo transaction and pay the repo rate;
b. repo transaction and receive the repo rate;
c. repo transaction and pay the repo rate;
d. reverse repo transaction and receive the repo rate.
The three main forms of delivery are, in order of safety for the cash ...

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