Question

a and b

Peter buys a 180-day bank bill with a face value of $500 000 at a yield of 2.9% p.a. (simple interest). After 92 days he sells it at a yield of 3.2% p.a. (simple interest). a. [7 marks] Draw a fully labelled cash flow diagram (from Peter's per- spective) that describes Peter's purchase and sale of the bank bill. b. [3 marks) What is the value of yield (simple interest) that Peter earned on this transaction? Include carefully detailed working with your so- lution.

Answer 1

Buy 180 days bank bill

Face value = $500000

Yield = 2.9% p.a

Sells after 92 days at yield of 3.2 % p.a

a)  

Borrower (Peter) $5,00,000 1-2-9% Pia 92 days A 360 days interest $3705 Sale (Peter) 12 3.2%.P.a 92 days - 360 days Interest =$ 4088 +5,00,000 =$5,04,088

b)

Interest to be received = $5,00,000 x 2.9% x 92/360 = $3705.55

Actual Interest received = $5,00,000 x 3.2 % x 92/360 = $4088.88

Value of yield that peter earned on this transaction = Actual Interest received - Interest to be received

= $4088.88 - $3705.55 = $383.338