Reynold, a celebrity chef and a restaurant owner, was forced to temporarily close his dessert bar from 1 April 2020 until 31 May 2020 (inclusive) due to the social distancing restrictions being imposed on all restaurants and bars in Australia as a result of Covid-19. With no other sources of income besides his restaurant, during the closure period Reynold lived off his savings and sold some of his existing assets to maintain the restaurant. After letting his staff take unpaid leave, the only fixed cost incurred to maintain his restaurant during the 2 months of closedown was rent ($110 000 was paid on 1 May 2020, i.e., 1 month after the start of the close-down period). Reynold purchased a 180-day $100 000 bank bill on 1 March 2020 at a yield rate of 4.00% p.a. (simple interest). After 62 days holding the bank bill, due to financial difficulties, he sold the bank bill 118 days early at a yield of 6.00% p.a. (simple interest) to pay for rent.

a.  Draw a carefully labelled cash flow diagram modelling the original bank bill purchase. Draw the cash flow diagram from Reynold's perspective.

b. Calculate the original purchase price of the 180-day bank bill on 1 March 2020 .

c. Calculate the sale price of the bank bill which Reynold received.

Answer rating: 100% (QA)

The bank bill is a investment security which is purchased at a discount price The difference between ... View the full answer