You are given the following price quotations on a Treasury Bond for the close of trading on May 31 and June 30, 2000. As on June 30 this Treasury Bond has a 90-day remaining life.
Treasury bond information
(i) On May 31, the Treasury Bond had a 120-day remaining life. On that day what percentage of par value would you pay to purchase the Treasury Bond?
(ii) Assume you purchased the Treasury Bond on May 31 and later sold it on June 30. What rate of return did you earn during this one-month period?
ANSWER
Alternative
(b)
i) An index in general terms is a measure of relative change from one point in price to another. Stock indices measure changes in price or value.
ii) Drawbacks of NSE:
– 20 companies not true representatives
– Thinness of the market – small changes in the active stocks tend to be considerably magnified in the index.
– 1966 base year too far in the past
– Relatively small price changes – some stock prices do not change for weeks on end.
– Lack of clear portfolio selection criteria
– Use of arithmetic instead of preferred geometric mean in computing index.
– New companies have been quoted and others deregistered.