The yield of a $50 000 45-day bill is currently 4%.If over the next 15 days the yield changes to 6%,the change in price will have both a time component and a yield component.In discrete percentage terms over the 15 days,calculate the amount by which the time component exceeds the yield component.

Question

Quizplus · Accepted Answer

Using equation 5.1,the initial price of the $50 000 note with a yield of 5% and with 45 days to maturity is $49 693.67.At the new time to maturity of 30 days and 6%,the price of the note is $49 754.63,which represents a discrete return over the 15 days of (49754.63 - 49693.67)/49693.67 = 0.0012%.The time component can be found by maintaining a constant term to yield and altering the term to maturity from 45 to 30 days.That is,use equation 5.1,page 138,with a yield of 5% and 30 days to maturity,which yields a price of 49 795.36,which represents a discrete yield of (49795.36 - 49,693.67)/49,693.67 = 0.0020.Therefore,the remaining part of the yield is due to the yield component,or 0.0012 - 0.0020 = -0.0008.Hence,the time component exceeds the yield component by 0.0020 - (-0.0008)= 0.0028.

The Yield of a $50 000 45-Day Bill Is Currently 0.0080 0.0080 0.0080

The Yield of a $50 000 45-Day Bill Is Currently $0.0080$