Calculate the following five yields.Calculate yields on 3-month T-bills for each of the prices in the following table and enter your results rounded to the nearest percent. Assume that allthe T-bills have a maturity value (MM) of $1,000. (Note: Be sure to use a negative sign if the yield is negative.)Price (PBPB) of a3-month T-Billwith 90 days leftto maturity$1,005$1,000$995$990$985Edit12pt ✓РView Insert Format Tools TableB I UCalculate yield %ParagraphAT² VBoBDAVIll!!!⠀0 words</> ✓✓ Understanding the price of bonds and interest rates.The remarkable thing about the events described in the article is that the yield on the 3-month T-bill was briefly negative. To see how thiscould happen, consider the relationship between bond prices and bond yields.A 3-month T-bill with a maturity value of $1,000 is just a piece of paper that entitles the holder to $1,000 in three months. For example, if youwere to buy a 3-month T-bill on September 24, 2008, with a maturity value of $1,000 and 90 days left to maturity, the U.S. government wouldpay you $1,000 on December 23, 2008.In general, the price of a bond is less than its maturity value. That is, if you are going to give up a certain amount of money for the duration ofthe bond, you expect to be paid for this loss of liquidity and compensated for inflation that could reduce the value of the repayment at theend of the period. Therefore, a piece of paper entitling you to $1,000 on December 23 would usually be worth less than $1,000 on September24. The yield on a bond is a function of the percent by which your money implicitly grows while invested in it. In order to compare yieldsamong bonds, yield is always reported as an annual interest rate. A bond's yield is a function of its maturity value (MM), its price (PBPB), andthe number of days until it matures. The general formula for the yield on a zero-coupon bond such as a T-bill is as follows:Percentage Yield = 100 x51000= 100 x 0.005 × 4 = 2%M-PBMx 4For example, if you were to pay $995 for a T-bill maturing in 90 days with a face value of $1,000, the percentage yield would be calculated asfollows:M = face value of the bond = $1,000PBM = pay for a T-bill = $995days to maturity = 90Percentage Yield = 100 x= 100 xX1000-9951000360days to maturity36090=Calculate the following five vields.2%

Treasury Bills (abbreviated T-Bills) are a type of short-term financial instrument that have…

Calculate the following five yields. Calculate yields on 3-month T-bills for each of the prices in the following table and enter your results rounded to the nearest percent. Assume that all the T-bills have a maturity value (MM) of $1,000. (Note: Be sure to use a negative sign if the yield is negative.) Price (PBPB) of a 3-month T-Bill with 90 days left to maturity $1,005 $1,000 $995 $990 $985 Calculate yield % Edit View Insert Format Tools Table 12pt ✓ Paragraph B I U A ✓ T² v D₂ ✓ 2 EV ⠀

Calculate the following five yields. Calculate yields on 3-month T-bills for each of the prices in the following table and enter your results rounded to the nearest percent. Assume that all the T-bills have a maturity value (MM) of $1,000. (Note: Be sure to use a negative sign if the yield is negative.) Price (PBPB) of a 3-month T-Bill with 90 days left to maturity $1,005 $1,000 $995 $990 $985 Calculate yield % Edit View Insert Format Tools Table 12pt ✓ Paragraph B I U A ✓ T² v D₂ ✓ 2 EV ⠀

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter19: The Basic Tools Of Finance

Section: Chapter Questions

Problem 3PA

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Similar questions

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The remarkable thing about the events described in the article is that the yield an the 3-month T-bill was briefly negative. To see how this could haroen, consider the relationship between bond prices and bond yields. A 3-month T-bill with a maturity value of $1,000 is just a piece of paper that entities the holder to $1,000 in three months. For example, if you were to buy a 3-month T-bill on September 24, 2008, with a maturity value of $1,000 and 90 days left to maturity, the U.S. government would pay you $1.000 on December 23, 2008. In general, the price of a bond is less than its maturity value. That is, if you are going to give up a certain amount of money for the duration of the bond, you expect to be paid for this loss of liquidity and compensated for inflation that could reduce the value of the repayment at the end of the period. Therefore, a piece of paper entitling you to $1,000 on December 23 would usually be worth less than $1,000 on September 24. The yield on a bond is a…
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