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
(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