A bill with 90 days to maturity initially has a yield of 8% p.a.and a face value of $100 000.This bill is held for 45 days and sold as a 45-day bill at a yield of 6%.What is the continuously compounding holding period rate of returns over the 45 days?

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Quizplus · Accepted Answer

The initial price would be 100000/[1 + (90/365)F1F1F1S1F1F1F10 (8.0/100)] = $98065.56.The price for the 45-day bill would be 100000/[1 + (45/365)F1F1F1S1F1F1F10 (6.0/100)] = $99265.71.Hence,the continuously compounded holding period return would be ln(99265.71/98065.56)= 0.0122 or 1.22% continuously compounding for 45 days.

A Bill with 90 Days to Maturity Initially Has a Yield