Julie purchased a 180-day $100 000 bank bill 74 days ago for $98 300.00. She sold it
Question:
Julie purchased a 180-day $100 000 bank bill 74 days ago for $98 300.00. She sold it to Tony today and received $99 000.00.
(i) Draw a cash flow diagram that captures the details of Julie's transactions.
(ii) Calculate the purchase yield (simple interest rate) and sale yield (simple interest rate) of this bill (as a percentage, rounded to 2 decimal places).
(iii) Without any further calculations, explain how the selling price will change if Tony accepts a lower yield.
(iv) Calculate capital gain or capital loss component of Julie's investment (in dollars and cents, to the nearest cent).
(v) Assuming Julie 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 Julie will end up with a cash surplus or cash deficit.
Expert Answer:
a i a ii Purchase Yield 100000 98300 98300 x 365 180 days x 100 351 Sale Yield 99000 98300 98300 x 3... View the full answer
Construction accounting and financial management
ISBN: 978-0135017111
2nd Edition
Authors: Steven j. Peterson
