Please answer everything in the photos including the graph. The remarkable thing about the events described in the article is that the yield on the 3-month T-bill was briefly negative. To see how this couldhappen, consider the relationship between bond prices and bond yields.A 3-month T-bill with a maturity value of $1,000 is just a piece of paper that entitles the holder to $1,000 in three months. For example, if you wereto buy a 3-month T-bill on September 24, 2008, with a maturity value of $1,000 and 90 days left to maturity, the U.S. government would pay you$1,000 on December 23, 2008.In general, the price of a bond is less than its maturity value. That is, if you are going to give up a certain amount of money for the duration of thebond, you expect to be paid for this loss of liquidity and compensated for inflation that could reduce the value of the repayment at the end of theperiod. Therefore, a piece of paper entitling you to $1,000 on December 23 would usually be worth less than $1,000 on September 24. The yield on abond is a function of the percent by which your money implicitly grows while invested in it. In order to compare yields among bonds, yield is alwaysreported as an annual interest rate. A bond's yield is a function of its maturity value (M), its price (PB), and the number of days until it matures. Thegeneral formula for the yield on a zero-coupon bond such as a T-bill is as follows:Percentage Yield = 100 xPercentage YieldM-PBMXFor example, if you were to pay $995 for a T-bill maturing in 90 days with a face value of $1,000, the percentage yield would be calculated as follows:= 2%$1,000-$995$1,000x 4100 x100 x$5$1,000100 x 0.005 X 4360Days to MaturityX36090 Calculate yields on 3-month T-bills for each of the prices in the following table and enter your results rounded to the nearest percent. Assume that allthe T-bills have a maturity value (M) of $1,000. (Note: Be sure to use a negative sign if the yield is negative.)Price (PB) of a 3-Month T-Bill with 90 Days Left to Maturity1,005.001,000.00995.00990.00985.0065YIELD ON 3-MONTH T-BILL (Percent).。. N wBased on the data from the previous table, use the black points (cross symbol) to plot the relationship between T-bill prices and their yields on thefollowing graph. Be sure to plot from left to right. Line segments will automatically connect the points.(?)-29859909951000PRICE OF 3-MONTH T-BILL (Dollars)Yield1005The implied yield on a bond becomes negative when its priceto such a situation in the T-bill market?0%2%%%+T-Bill Price/YieldRefer back to the points you plotted on the previous graph. The line showing the relationship between bond prices and bond yields has aslope; hence, there isrelationship between bond prices and interest rates.its maturity value. Which of the following events would most likely leadThe United States Treasury holds a large auction of T-bills, increasing the supply of T-bills in the market.OA massive decrease in investor confidence sharply increases the demand for T-bills. The increased demand causes T-bill prices to riseabove their maturity values.O The United States government is forced to shut down its offices for several months because Congress and the president cannot pass abudget.

In the bonds market, the equilibrium price of bonds and the equilibrium quantity of bonds traded in…

The remarkable thing about the events described in the article is that the yield on the 3-month T-bill was briefly negative. To see how this could happen, consider the relationship between bond prices and bond yields. A 3-month T-bill with a maturity value of $1,000 is just a piece of paper that entitles the holder to $1,000 in three months. For example, if you were to buy a 3-month T-bill on September 24, 2008, with a maturity value of $1,000 and 90 days left to maturity, the U.S. government would pay you $1,000 on December 23, 2008. In general, the price of a bond is less than its maturity value. That is, if you are going to give up a certain amount of money for the duration of the bond, you expect to be paid for this loss of liquidity and compensated for inflation that could reduce the value of the repayment at the end of the period. Therefore, a piece of paper entitling you to $1,000 on December 23 would usually be worth less than $1,000 on September 24. The yield on a bond is a function of the percent by which your money implicitly grows while invested in it. In order to compare yields among bonds, yield is always reported as an annual interest rate. A bond's yield is a function of its maturity value (M), its price (PB), and the number of days until it matures. The

7th Edition

ISBN:9781285165875

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter27: The Basic Tools Of Finance

Section: Chapter Questions

Problem 3PA