Task 1   On Friday 26th January 2018, the UK government held its weekly auction of government Treasury bills. The table below outlines prices for the one-, three- and six-month bills.   Maturity Date Average Price Average Discount 26th February 2018 99.978223   30th April 2018 99.940167   30th July 2018 99.779994     Calculate the discount rates for the three bills. You must show the price using an appropriate mathematical formulation and take into account the difference between the auction date and settlement date when working out the terms to maturity.   2. The table below lists the principal amounts of each bill auctioned and the scale of bidding on 26th January 2018.   Maturity Date Principal Amount Sold Aggregate Scale of Bids 26th February 2018 £500 million £2711.5 million 30th April 2018 £500 million £2869.0 million 30th July 2018 £2000 million £6134.5 million   Calculate and comment on the significance of the bid-to-cover ratios given the size of the yields.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Task 1

 

  1. On Friday 26th January 2018, the UK government held its weekly auction of government Treasury bills. The table below outlines prices for the one-, three- and six-month bills.

 

Maturity Date

Average Price

Average Discount

26th February 2018

99.978223

 

30th April 2018

99.940167

 

30th July 2018

99.779994

 

 

Calculate the discount rates for the three bills. You must show the price using an appropriate mathematical formulation and take into account the difference between the auction date and settlement date when working out the terms to maturity.

 

2. The table below lists the principal amounts of each bill auctioned and the scale of bidding on 26th January 2018.

 

Maturity Date

Principal Amount Sold

Aggregate Scale of Bids

26th February 2018

£500 million

£2711.5 million

30th April 2018

£500 million

£2869.0 million

30th July 2018

£2000 million

£6134.5 million

 

Calculate and comment on the significance of the bid-to-cover ratios given the size of the yields.

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