...28 days T-bill 2) 91 days T-bill 3) 182 days T-bill. Currently.4) 364 days T-bill 5) 2 years T-bill 6) 5 years reasury bill or T-bill is a short-term debt issued by a national government with a maximum maturity of one year. Treasury bills are sold at discount, such that the difference between purchase price and the value at maturity is the amount of interest. Although the maturity of T-bill shouldn't be more than one year, in Bangladesh, 2-year and 5-year securities are also regarded as T-bills. Treasury bills are fully guaranteed by the government and hence are free from default risk. The biggest reason that T-Bills are so popular is because they are one of the few money market instruments that are affordable to the individual investors. Basically, investors invest in T-bills due to: 1) maintain the Statutory Liquidity Reserve (SLR), 2) maintain adequate liquidity 3) earn yields 4) utilize properly huge idle cash in banks, and 5) Safe guard their investments. Since they mature so quickly, T-bills are simply sold at a discount to their face value at maturity. The discount is determined by the interest rate. If it is a six-month bill with a 5% discount rate, the investor pays 95% of the face value or Tk. 950, and then receives Tk. 1,000 back in six months. T-bills are indirect tools for monetary management of the central bank of a country. Six types of T-bills are available in Bangladesh: 28-day, 91-day, 182-day, 64-day, 2-year, and 5-year government treasury bills are duly...
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...1. Introduction: We know the fact that low interest rate affects stock market price. Low interest rate decreases the cost of capital and increases the confidence of investors. The equity risk premium is the "extra return" that investors collectively demand for investing their money in stocks instead of holding it in a risk less or close to risk less investment. As a consequence, equity risk premium reflects both investor hopes and fears about stocks, rising as the fear factor increases. As a measure the equity risk premium can be an individual stock or the overall stock market provides over a risk-free rate. And the size of the premium will be a standard to compensate with a higher premium in the stock market. Thus, a portfolio manager when the equity risk premium increases in the future， the investors will sell out stock market because the stocks are over priced. So the legislators and pension administrators decide how much to set aside to meet future pension obligations, based upon assessments of equity risk premiums. However the history data of ERP (Equity Risk Premium) from Federal Reserve System shows it keeps low and stable state but increases suddenly since 2006. At the same time the Federal Funds Effective Rate goes down and keeps low state. We know that interest rate is a way to control inflation. Inflation is a factor causes too much money chasing too few goods. “Changes in the federal funds rate affect the behavior of consumers and businesses...
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...Firm Analysis Step 1 we choose the following two stocks: Netflix Sector: Services. Industry: Music & Video Stores. Industry info : In this industry there is a huge competition between all the companies however, the music and video industry is very far away from declining. Growth is always occuring to that industry new companies are always introduced and old companies struggle to stay in the market. Consumers never lose their apetite. However, technologies change new companies get in and old get out. but in my point of view the industry will always be profitable. Netflix is an example of an expanding company in an expanding industry for various reasons: Since Netflix is still getting revenues despite of the fierce comptetion in the movie sector. They still have a growing base of customers and consumers. Netflix did also manage in creating the new movie/tv shows rentals mentality after shifting from sending DVDs through mail into unlimited streaming. And now netflix expanded even more and began producing their own shows. That growth in their profit and Netflix's ability to adapt with the the market and consumer habbits netflix is still far away from stagnation. Sprint Sector: Technology. Industry : Wireless Communications. We need to fill this Step 2 we went to the Wharton Research Database Services (WRDS): http://wrds.wharton.upenn.edu/ and downloaded the following data for our two stocks: • ACT = current assets, total; • LCT = current liabilities...
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...Chapter 6: Questions and Applications 3 and 9; Problems 1, 7, and 8 Candy Medeiros Strayer University FIN350 Professor Dr. Marcus Crawford October 27, 2013 3. Secondary Market for T-bills Describe the activity in the secondary T-bill market. How can this degree of activity benefit investors in T-bills? Why might a financial institution sometimes consider T-bills as a potential source of funds? The activity in the secondary market for T-bills is sort of like an auction, because the treasury bills are sold at a price that dealers are willing to purchase and sell, which the purchase is considered the bid price and when they sell, it is called the asking price. The spread that is between these prices is what the dealers are paid for their broker fees for handling the transactions. In this market, since there are no competitive bidders, the par value can go up to about a million dollars per auction and the ones that normally are interested in this secondary market are large corporations. 9. Banker’s Acceptances Explain how each of the following would use banker’s acceptances: (a) exporting firms, (b) importing firms, (c) commercial banks, and (d) investors. If a merchant needs products from suppliers, they will have the capital to complete the transaction, but if they do not have the funds, then Banker’s Acceptance is another avenue they could use to raise the capital to purchase the goods or services. How this works, is the merchant can ask the bank for a time...
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...2013 MANAGERIAL ECONOMICS GROUP PROJECT: “US TREASURY BILLS AUCTION PRICING: ANALYSIS OF THE STRUCTURE AND PROCESSES” Professor: Done by: The goal of this paper was to analyze and explain the auction system process held by US Treasury and the possible alternatives for it (multiple-pricing auction). Introduction. The U.S. Treasury Department regularly borrows to finance the Federal Government's debt. From 1980 to 2006, the public debt of the United States grew from $930 billion to $8.68 trillion. Approximately one-half of that debt is held in Treasury bills, notes, and bonds, or "treasuries." The Treasury Department sells these securities at auctions held at the Federal Reserve Bank of New York, and the Bureau of Public Debt (BPD) in Washington, D.C. The rest of the debt is held mostly in federal and federally sponsored agency securities and U.S. Savings Bonds, and is not sold through the auction process.1 The modern auction process for bills, notes, and bonds begins with a public announcement by the Treasury. A typical announcement might read, "The Treasury will auction $11,000 million of 91-day bills to refund $9,000 million of maturing securities and to raise about $2,000 million new cash." This statement clearly describes the 2 goals of Treasury: to refund old debt and to raise new funds. Such announcement is carried by...
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...Classes and Financial Instruments Multiple Choice Questions 1. Which of the following is not a money market instrument? A. Treasury bill B. Commercial paper C. Preferred stock D. Banker's acceptance 2. Thirteen week T-bill auctions are conducted ____. A. daily B. weekly C. monthly D. quarterly 3. When computing the bank discount yield you would use ____ days in the year. A. 260 B. 360 C. 365 D. 366 4. A dollar denominated deposit at a London bank is called _____. A. eurodollars B. LIBOR C. fed funds D. banker's acceptance 5. Money market securities are sometimes referred to as "cash equivalent" because _____. A. they are safe and marketable B. they are not liquid C. they are high risk D. they are low denomination 6. The most actively traded money market security is A. Treasury bills B. Bankers' Acceptances C. Certificates of Deposit D. Common stock 7. ______ voting of common stock gives minority shareholders the most representation on the board of directors. A. Majority B. Cumulative C. Rights D. Proxy 8. An investor in a T-bill earns interest by _________. A. receiving interest payments every 90 days B. receiving dividend payments every 30 days C. converting the T-bill at maturity into a higher valued T-note D. buying the bill at a discount from the face value received at maturity 9. ______ would not be included in the EAFE index. A. Australia B. Canada C. France ...
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...| | | 30 Day / 1 month T-Bills | .02% | Treasury.gov | 90 Day / 3 month T-Bills | .02% | Treasury.gov | 1 Yr. T-Bills | .36% | Treasury.gov | US Commercial Paper (indicate term) | .10% (1 day) and .20% (90 days) | Federalreserve.gov | Overnight Repos | .18% | WSJ.com | Federal Funds (indicate term) | .14% | Newyorkfed.org | Banker’s Acceptances (indicate term) | .15% (30 days) and .23% (90 days) | WSJ.com | Eurodollar Deposits (indicate term) | .10% for 1 month | WSJ.com | Euro CP (indicate term) | -.03% for 30 days | WSJ.com | US Discount Rate | .75% | WSJ.com | LIBOR (US$) (indicate term) | .1355% for overnight | WSJ.com | EURO LIBOR (Euribor) (indicate term) | -.18% for overnight | WSJ.com | | | | Long Term Rates / Bond Market | | | 5 Yr. Treasury Notes | 1.47% | Treasury.gov | 10 Yr. Treasury Notes | 2.13% | Treasury.gov | 30 Yr. Treasury Bonds | 2.89% | Treasury.gov | 5 Yr. TIPS (Treasury Inflation Protected Securities) | .33% | Stlouisfed.org | US Agency Bonds, e.g. Fannie Mae, Freddie Mac, Ginnie Mae | .10% | WSJ.com | US Corp Bonds - Investment Grade | .29% | Us.spindices.com | US Corp Bonds – High Yield / Junk | -.05% | Us.spindices.com | Muni Bonds | .78% 2 year AA | Finance.yahoo.com | Note the source(s) for your information. Also, you may want to indicate the term for bond rates if you find that the rates differ significantly depending on the maturity. Plot the Yield Curve for US Treasuries. ...
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...Are TIPS the “Real” Deal?: A Conditional Assessment of their Role in a Nominal Portfolio Delroy M. Hunter Dept of Finance College of Business Administration University of South Florida Tampa, FL 33620 Dhunter@coba.usf.edu Tele: (813) 974 6330 Fax: (813) 974 3030 David P. Simon∗ Dept of Finance Bentley College Waltham, MA 02452 Dsimon@bentley.edu. Tele: (781) 891 2489 Fax: (781) 891 2982 July 1, 2002 ∗ Corresponding author. We thank the Hughey Center for Financial Services at Bentley College for the data and the second author thanks Bentley College for a summer research grant. The usual disclaimer applies. Are TIPS the “Real” Deal?: A Conditional Assessment of their Role in a Nominal Portfolio Abstract This paper documents predictable time-variation in the real return beta of U.S. Treasury inflation protected securities (TIPS) and in the Sharpe ratios of both indexed and conventional bonds. The conditional mean and volatility of both bonds and their conditional correlation are first estimated from predetermined variables. These estimates are then used to compute conditional real return betas and Sharpe ratios. The time-variation in real return betas and the correlation between TIPS and nominal bonds coincides with major developments in the fixed income market. One implication of this predictability is that portfolio managers can assess more efficiently the risk of investing in TIPS versus conventional bonds. Conditional Sharpe ratios indicate that over...
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...Yield Curve and Bond Valuation Name: Lecturer: Course: Date: Yield Curve and Bond Valuation Question 1 and 2 Based on the information retrieved from the Board of Governors of the Federal Reserve System on a 1-month business day, the following information concerning historical dairy interest rates on the U.S treasury was obtained. The rates were picked from the current dates (1st January2012) back to five years a go (1st January 2007). Whereby, if that date was not a business date the preceding date was selected as shown in the table below. |Business Date chosen Five Years Ago |1st January 2007 | |1-month Nominal T-bill Rate on that date |5.02% | |3--month Nominal T-bill Rate on that date |4.79% | |6-month Nominal T-bill Rate on that date |5.11% | |1-year Nominal T-note Rate on that Date |5% | |5-year Nominal T-note Rate on that Date |4.68% | |10-year Nominal T-note Rate on that Date ...
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...Homework Assignment – Week 2 Chapter 3 1. Write down the formula that is used to calculate the yield to maturity on a 20-year 10% coupon bond with $1,000 face value that sells for $2,000. Assume yearly coupons. $2000 $100/(1 i) $100/(1 i)2 $100/(1 i)20 $1000/(1 i)20 2. If there is a decline in interest rates, which would you rather be holding, long-term bonds or short-term bonds? Why? Which type of bond has the greater interest-rate risk? You would rather be holding long-term bonds because their price would increase more than the price of the short-term bonds, giving them a higher return. 3. A financial advisor has just given you the following advice: “Long-term bonds are a great investment because their interest rate is over 20%.” Is the financial advisor necessarily correct? No. If interest rates rise sharply in the future, long-term bonds may suffer such a sharp fall in price that their return might be quite low, possibly even negative. 4. If mortgage rates rise from 5% to 10%, but the expected rate of increase in housing prices rises from 2% to 9%, are people more or less likely to buy houses? People are more likely to buy houses because the real interest rate when purchasing a house has fallen from 3 percent (5 percent –2 percent) to 1 percent (10 percent 9 percent). The real cost of financing the house is thus lower, even though mortgage rates have risen. (If the tax deductibility of interest payments is allowed for, then...
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...Purpose of Call Money Market Characteristics • Maturity: The maturity of the call money market instruments are varying between a day to a fortnight. As it consists with the day-to-day surplus funds, so its payable on demand at the option of either the lender or the borrower. • Liquidity Nature: All the instruments of this market are highly liquid and their liquidity being exceeded only by cash. • Yield: It includes the rate of interest paid on call loans and its also known as Call Rates. The call rate is highly variable from day to day and often from hour to hour. It may vary from centre to centre also. It is very sensitive to the changes in demand for and supply of call moneys. • Location of Transaction: The call money market is mainly located in big industrial and commercial centers. • Volume of Call Money to be Transacted: The volume of call loans depends on the extent of deposits accrual, the possibility of quick investment in and liquidation of other money market instruments, timing of advance tax payments and seasonal fluctuations in demand for credit etc. • Risk: This includes the flexibility of call money rate. As it is volatile in accordance with the difference in Trading Centers & Bank Rate so any removal of ceiling in these centers, the call money rate is supposed to be fluctuated widely. Beside these, the large amount of borrowings by banks an certain dates to meet CRR requirements, overextended credit...
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...NATIO ONAL STOCK EXCHA S ANGE OF INDIA LIMITE A ED Depart rtment : SB BU-Educatio on NCFM – COURS OUTLINE M SE FIMMDA-NSE Deb Market (Basic) Mod bt dule Debt Instruments Basic conce epts of debt in nstruments Indian Debt Markets t Different typ of produc and partic pes cts cipants; Seco ondary market for debt in nstruments Central Gov vernment Se ecurities: Bo onds Primary issu uance proces Participan in Govern ss; nts nment bond markets; Co onstituent SG accounts; GL Concept of P Primary dealers, Satellite dealers; Se e econdary markets for Gov vernment bonds; Settlem ment of trades in G G-Secs; Clea aring corpora ation; Negoti iated Dealing System; Liq g quidity Adjus stment Facilit ty (LAF). vernment Se ecurities: Tr reasury Bills s Central Gov Issuance pro ocess; Cut-O yields; Inv Off vestors in T-B Bills; Second dary market a activity in T-b bills. State Gover rnment Bon nds Gross fiscal deficit of sta Governm ents and its financing; Vo ate olume, Coup rates and ownership pon d pattern of St tate Governm ment bonds. Call Money Markets Participants in the call markets; Call rates m Debt: Bonds s Corporate D Market segm ments; Issue process; Iss managem sue ment and Book building; Terms of a debenture iss d sue; Credit rating g. Commercia Paper & Certificate of Deposits al C f Guidelines fo CP Issue; Rating notc or ches for...
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...| FIN 424 | Make-up Quiz 02: Assignment | | Submitted By | Faraiba Farnan Tabinda | ID: 12104189 BRAC Business School ID: 12104189 BRAC Business School | Submitted To Sayla Sowat Siddique Lecturer BRAC Business School Submitted To Sayla Sowat Siddique Lecturer BRAC Business School Answer 01: The yields on Treasury Bills (T-bills) will decrease since the interest rate is expected to decrease in the future. T-bill is a short term security with maturity at less than 1 year. So the supply of T-bills will decrease as people would want to buy more long term securities with the intuition that the interest rate will fall in the future and everyone would want their money to be blocked at a long term security which would give more interest. Interest Rate Interest Rate Year Year 2005 2005 2009 2009 Figure: Yield Curve In 2005 and 2006, the inflation rate averaged 3.3%. It is expected that the inflation rate will fall to 2.5% in 2007 and to fall further to 2% in both 2008 and 2009. Since the inflation rate is interpreted to decrease in the future, the interest rate of the securities will be expected to decrease accordingly in the coming years since inflation and interest has a direct relationship among them. The supply of short term securities will decrease and long term securities will increase as people will be looking forward to spending less in the future...
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...Author Name: Wayne E. Ferson and Campbell R. Harvey 4. Year of publication: August 1999 5. Objective/Purpose/Issue: This paper shows that loadings on the same variables provide significant cross-sectional explanatory power for stock portfolio returns 6. Hypothesis: Null Hypothesis the FF three-factor model identifies the relevant risk in a linear return-generating process: ri,t+1 = Et(ri,t+1) + Bit{rp,t+1 - Et(rp,t+1)} + Ei,t+1, Et(ei,t+1) = 0, Et(ei,t+1rp,t+1) = 0 7. Variables (1) the difference between the one-month lagged returns of a three-month and a one-month Treasury bill (2) the dividend yield of the Standard and Poors 500 (S&P 500) index (3) the spread between Moody's Baa and Aaa corporate bond yields (4) the spread between a ten-year and a one-year Treasury bond yield 8. Measurement of Variables: Returns on 25 value-weighted portfolios formed on size (as of June of the preceding year) and the ratio of book value to market value (as of the previous December) are summarized. Returns are measured in excess of a one-month Treasury bill return. S1 refers to the lowest 20 percent of market capitalization, S5 is the largest 20 percent, B1 refers to the lowest 20 percent of the book/market ratios, and B5 is the largest 20 percent. Market is the return on the value-weighted portfolio of all COMPUSTAT stocks used in forming the portfolios. HML is a high book/market less a low book/market return and SMB is a small firm return less...
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...higher the risk of an investment, the higher is its expected return. 2. Since the price didn’t change, the capital gains yield was zero. If the total return was four percent, then the dividend yield must be four percent. 3. It is impossible to lose more than –100 percent of your investment. Therefore, return distributions are cut off on the lower tail at –100 percent; if returns were truly normally distributed, you could lose much more. 4. To calculate an arithmetic return, you simply sum the returns and divide by the number of returns. As such, arithmetic returns do not account for the effects of compounding. Geometric returns do account for the effects of compounding and for changes in the base used for each year’s calculation of returns. As an investor, the more important return of an asset is the geometric return. 5. Blume’s formula uses the arithmetic and geometric returns along with the number of observations to approximate a holding period return. When predicting a holding period return, the arithmetic return will tend to be too high and the geometric return will tend to be too low. Blume’s formula adjusts these returns for different holding period expected returns. 6. T-bill rates were highest in the early eighties since inflation at the time was relatively high. As we discuss in our chapter on interest rates, rates on T-bills will almost always be slightly higher than the expected rate of inflation. 7. Risk premiums are about the same whether or...
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