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Question 1

1. The Federal Government is intending on making a large cash investment in June and July of 2021. As a consequence, the government will have a short-term shortfall of $5.5 million between cash receipts and expenditures. The government is intending to meet this shortfall by issuing 60-day Treasury Notes today. Calculate the face value of this issue, given a yield of 1.5% pa. Show all calculations. Note: You can write down the calculations by hand and attach a photo of your answer.
2. Discuss the process through which the Australian Federal Government issues debt securities to the market. In your answer, discuss the bidding process and what determines the yield at which treasury securities are issued. Please ensure that your answer is succinct and to the point, and be mindful of the word limit for the exam.
3. The Burning Cash company raised $1m through a 10-year bond issue on the 31^st of December 2019. The bond pays 5% pa in coupons, with coupons paid quarterly. Calculate the price of the bond on the 8^th of June 2021, given a market yield of 4.5%. In your answer, identify whether the bond is trading at a discount or a premium, and explain the logic why this is the case. Show all calculations. Note: You can write down the calculations by hand and attach a photo of your answer.

[4+3+7] = 14 marks

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