FIN3160 Seminar Questions – Pricing Short-Term Fixed Interest Securities
Question 1
28-Day UK Treasury Bill Yields, Central Bank Rates and Inflation (Selective Dates)
Auction Date
Annualised Yield
Bank of England Rate
Annual Inflation Rate
10th March 2000
5.845992%
6.00%
0.6%
8th March 2002
3.925000%
4.00%
1.5%
7th March 2008
5.175558%
5.25%
2.5%
6th March 2009
0.461666%
0.50%
2.9%
24th June 2016
0.345975%
0.50%
0.4%
21st October 2016
0.158731%
0.25%
1.0%
a) Calculate the prices of the two bills with the highest and lowest yields. Comment on the scale
of the price difference.
b) Try to identify the factors associated with the following two changes:
i. From March 2008 to March 2009
ii. From June 2016 to October 2016
c) Comment on the correlation between the treasury bill yields and official Bank of England rates
(no need to calculate an exact correlation).
d) Calculate the annualised real rates of return on the six treasury bills and comment on the
significance of the differences.
Question 2
1-month US Treasury Bill Yields, Commercial Paper Yields and Federal Funds Rates
Date
Treasury Bills
Commercial Paper
Federal Funds
October 2001
2.34%
2.41%
2.49%
October 2007
4.14%
4.76%
4.76%
October 2009
0.06%
0.12%
0.12%
October 2011
0.02%
0.09%
0.19%
October 2015
0.03%
0.11%
0.12%
October 2016
0.23%
0.44%
0.41%