Question

Polycorp wishes to issue a 90 day bank bill with a face value of $2,000,000. If the current 90 day rate is 8% how much will Polycorp issue the bill for. Calculate to the nearest dollar. 1961311 2000000/(0.08*90/365)Polycorp wishes to issue a 90 day bank bill with a face value of $2,000,000. If the current 90 day rate is 8% how much will Polycorp issue the bill for. Calculate to the nearest dollar. 1961311 2000000/(0.08*90/365)

I did the calculation multiple times and it appears to be 101,388,888.9. Kindly do explain. Thanks.

Answer 1

Assume Issue price of bill is				1
Interest for 90 days = 1*0.08*90/365 =				0.019726
Interest + principal =				1.019726
It means if we issue at 1, after 90 days repayment shall be equal to 1.019726 that is equal to face value of 2000000
So, issue price 1 = 2000000/1.09726 * 1 =				1961311
Issue price of bill is $1961311.
Note : Calculation mentioned in question is slightly wrong.
It is like that 2000000/ (1 + (1*0.08*90/365) )
	2000000/1.09726 =		1961311