Explore BrainMass
Share

Explore BrainMass

    Discount Yield-treasury bill, liquidity premium hypothesis

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    5) You wish to invest funds for the next 180 days. You have the following choices:
    a) buy 180 day t-bills at a discount yield of 6% and hold them until maturing
    b) Buy 360 day t-bill at a discount yield of 6.25% and sell them in 180 days.
    Which would you do?
    Which would you do if you prefer the liquidity premium hypothesis?

    © BrainMass Inc. brainmass.com October 9, 2019, 7:49 pm ad1c9bdddf
    https://brainmass.com/business/interest-rates/discount-yield-treasury-bill-liquidity-premium-hypothesis-130468

    Solution Preview

    Please see attached file.
    5) You wish to invest funds for the next 180 days.  You have the following choices:
    a) buy 180 day t-bills at a discount yield of 6% and hold them until maturing
    b) Buy 360 day t-bill at a discount yeild of 6.25% and sell them in 180 days.
    Which would you do?
    Which would you do if you prefer the liquidity premium hypothesis?

    a) buy 180 day t-bills at a discount yield of ...

    Solution Summary

    The expert finds the investment (in treasury bill)with the higher yield.

    $2.19