Question

What should be the value of a Bankers’ Acceptance with a $100,000 face value and 79 days until maturity quoted on a discount basis yielding 1.8935% with the current inflation rate of 2.2972? Consider the same question above assuming a $250,000 face value and 279 days until maturity quoted on a discount basis yielding .8935% with the current inflation rate of 1.467? Please show all your work.

Answer 1

Sol:

Face value = $100,000

Days to maturity = 79 days

Discount yield = 1.8935%

Inflation rate = 2.2972%

a) Value of Bankers acceptance (VBA) = Face value + inflation rate x (1 - Days to maturity / 360 x Discount yield)

VBA = 100000 + 2.2972% x (1 - 79/360 x 1.8935%)

VBA = 102297.2 x (1 - 0.2194 x 1.8935%)

VBA = 102297.2 x (1 - 0.004155)

VBA = 102297.2 x 0.995845

VBA = $101,872.16

b) VBA = 250000 + 1.467% x (1 - 279/360 x 0.8935%)

VBA = 253667.5 x (1 - 0.775 x 0.8935%)

VBA = 253667.5 x (1 - 0.006925)

VBA = 253667.5 x 0.993075

VBA = 253667.5 x 0.993075

VBA = $251,910.90