Question 1: You paid $98,000 for a $100,000 T-bill maturing in 120 days. If you hold it until maturity, what is the T-bill yield? What is the T-bill discount?

Question 2: A money market security that has a par value of $10,000 sells for $8,816.60. Given that the security has a maturity of two years, what is the investor's required rate of return?

Question 3: A U.S. investor obtains Japanese Yen when the yen is worth 100 yen per $ and invests in a one-year money market security that provides a yield of 5 percent (in yen). At the end of one year, the investor converts the proceeds from the investment back to dollars at the prevailing spot rate of 90 yen per $. Calculate the effective yield. (Hint: Calculate %?S in dollar terms)

Question 4: Explain the use of call provisions on bonds. How can a call provision affect the price of a bond?

Question 5: Are variable-rate bonds attractive to investors who expect interest rates to decrease? Explain. Would a firm that needs to borrow funds consider issuing variable-rate bonds if it expects that interest rates will decrease? Explain.