Reference no: EM132546045
A 182-day, $1,000,000 Government of Canada treasury bill yields 3.99% per annum is sold to Investor A.
a) What is the price of the T-bill?
Ballpark estimate, i.e. rough guess. (please show your calculations):
Precise / formula calculation
b) Assume the correct answer to a) was $980,000. The Treasury Bill was sold 65 days after the initial transaction for $990,900 by Investor A to Investor B.
i. What is the dollar amount of interest earned by Investor A?
ii. What is the effective % return on investment earned by Investor A?
iii. Assuming Investor B holds the Treasury Bill until maturity, what dollar amount of interest did Investor B gain or lose?
iv. What is the effective annual % return on investment earned/lost by Investor B?
v. If there is a material difference in the % rate of returns earned by Investor A and Investor B, explain why this has occurred?
vi. For Bank of Canada:
a. After all transactions are considered, what was the effective interest rate paid by the Bank of Canada which originally issued the T-Bill?
b. Why could Bank of Canada's effective rate it pays (expressed in % terms) be either higher or lower than the % rate of return earned by Investor A or Investor B.
c.If the initial price paid by Party A was $980,000 and Party A later sold the T-Bill to Investor B for 990,900, how much interest did Bank of Canada actually pay and to whom did it make the actual cash payment of interest to, Investor A or Investor B or both?
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