1. What would happen to market efficiency if all investors attempted to follow an active portfolio (engaged in security analysis) strategy? Explain.
2. This question is about accrued interest and has two parts.
a. Consider a 4.75% coupon, 10-year U.S. Treasury note that matures on August 15, 2017. Calculate the accrued interest for $1 million par value position assuming a settlement date of October 16, 2007. Assume that interest starts accruing on August 15, 2007. (There are 62 days in the accrued interest period and 184 days in the entire coupon period.
b.“The growth of accrued interest takes place independently of changes in the interest rate environment.” Do you agree or disagree with this statement? Explain your reasoning.