1. A bank issues 90-day bank-accepted bills on behalf of a borrower for a fee of 50 basis points. Given a market yield of 4.5% and a face value of $1...

1. A bank issues 90-day bank-accepted bills on behalf of a borrower for a fee of 50 basis points. Given a market yield of 4.5% and a face value of $1 million, what fee will the bank earn?

2. A bond with exactly five years until maturity paying 6% p.a. coupons semi-annually and with a face value of $100 was purchased at a yield of 6.5% p.a. The bond was sold exactly two years later for a yield of 5% p.a. All coupons were reinvested at 6% p.a. Calculate the realised yield-to-maturity on this bond. (20 marks)

3. Commonwealth Bank agrees to establish a 270-day bill facility using 90-day bank bills. The face value of the facility is $10 million, and the issuer is charged an acceptance fee of 60 basis points. Calculate the net cash flows from 1) the issuer’s and 2) the bank’s perspective, respectively. Briefly explain what does each of the cash flows stand for. (The first parcel is issued at a market yield of 4.80% p.a., the second at 4.65% and the third at 5.00%.) (25 marks)