1. 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 realized yield-to-maturity on this bond.
2. 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 each of the cash flows stands 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)
3. Explain and illustrate the risks and possible returns from an investment in the money market given the 90-day BBSW is currently 4.75 per cent
4. Describe and explain each of the key indicators examined by the RBA in its Financial Stability Review
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