Yolanda bought a 180-day $100 000 bank bill 74 days ago for $98 300.00. She sold it to George today and received $99 000.00.

a.) Calculate the purchase yield (simple interest rate)and sale yield (simple interest rate) of this bill (as a percentage, rounded to 2 decimal places).

b.) Without any further calculations, explain how the selling price will change if George accepts a lower yield.

c.) Calculate capital gain or capital loss component of Yolanda's investment (in dollars and cents, to the nearest cent).

d.) Assuming Yolanda borrowed to purchase the bond,

what is the break-even rate of interest of borrowing (simple interest, as a percentage, rounded to 2 decimal places)? If the borrowing cost rate is 10 basis points higher than the break-even rate, explain whether Yolanda will end up with a cash surplus or cash deficit.

Answer rating: 100% (QA)

1Cash flow of Yolandas transactions Day 0 74 Purchase of Bank Bil... View the full answer