Question

An investor purchased a $100000,a bid price of 94.100 The investor held the bill for 80 days and then sold it to the secondary market at 10*3/4% bank discount ? Find the proceed of the sale . Find the interest rate earned by the investor during the period he held the bill The yield the new buyer will get on interest basis if he hold till maturity.

Need full explanation

Answers like A)96954.17

B)13.65

C)11.09%

Using formulae P =S (1-dt)

Answer 1

The number of units received=Amount invested / Bid Price=$100,000/94.100=1,062.699

The proceeds of the sale would be computed below : -

P =$100x (1-0.1075 x 80/364)

P=$100 x (1-0.023626)

P=$100x0.976374=$97.63736

The sale proceeds =Price on sale x number of units=$97.63736 x 1,062.699=$103,759.2

The rate of interest=(Ask price/ Bid Price-1) x (364/ number of days held)

The rate of interest=($97.63736/ $94.1-1) x (364/ 80)

The rate of interest=(1.037592-1) x (4.55)

The rate of interest=(0.037592) x (4.55)

The rate of interest=0.171041=17.1041%

The rate of interest=(Ask price/ Bid Price-1) x (364/ (number of days held-364))

The rate of interest=($97.63736/ $94.1-1) x (364/(364-80))

The rate of interest=(1.037592-1) x (364/(284))

The rate of interest=(0.037592) x (1.28169)

The rate of interest=0.048181=4.81%