As an investor, you decided to purchase a-90 day Bank Bill that has a face value...
As an investor, you decided to purchase a-90 day Bank Bill that has a face value of $100,000. When purchased, the bill had 68 days to maturity and was yielding 8.25%. After holding the bill for 10 days, interest rates increased to 9.00% and you sold the bill. What dollar amount of interest did you earn?
- -$ 11.25
- $ 25.78
- $ 87.65
- $103.75
- $109.89
Homework Answers
Answer:
Correct answer is:
d. $103.75
Explanation:
When purchased:
Time to maturity = 68 days
Yield = 8.25%
Price purchased = $100,000 / (1 + 8.25% * 68/365) = $98,486.28
Sale of bill:
Sale of Bill after holding 10 days:
Time to maturity = 68 - 10 = 58 days
Yield = 9.00%
Sale value = $100,000 / (1 + 9% * 58/365) = $98,590.03
Interest earned = $98,590.03 - $98,486.28 = $103.75
As such option d is correct and other options a, b, c and e are incorrect.
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