Answer:
1) B
2) A
3) D
Explanation:
1) Discount yield(%) = Face value - Purchase value/Face value X 360/Maturity ( in days) X 100%
Discount yield (quote) = 5.11; Face value = $10,000; Let Purchase value = x; Maturity = 90 days
(5.11)% = $(10,000 - x)/$10,000 X 360/90 X 100%
5.11 = 400(10,000 - x)/10,000
x = 4,000,000 - 51100/400 = 3,948,900 = $9,872.25
3) Face value = $10,000; Purchase value = $9,850; Maturity = 120 days
Investor's bond equivalent yield(%) = $(10,000 - 9,850)10,000 X 360/120 X 100%
= 45/10 = 4.5%
