Yolanda bought a 180-day $100 000 bank bill 74 days ago for $98 300.00. She sold it to George… 1 answer below »

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.

(i) [2 marks] Draw a cash flow diagram that captures the details of

Yolanda’s transactions.

(ii) [2 marks] 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) [2 marks] Without any further calculations, explain how the selling price will change if George accepts a lower yield.

(iv) [2 marks] Calculate capital gain or capital loss component of

Yolanda’s investment (in dollars and cents, to the nearest cent).

(v) [4 marks] 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.

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