XYZ funds purchased a bank bill (face value=1 million) on 10th June 2020. The bill will mature in 60 days and the yield is 6.95%. After holding the bill for 40 days, the funds sold the bill at a yield of 6.5%.
a) Calculate the profit through buy and sell of this bank bill. (4.5 marks)
b) Work out the simple annual interest rate and effective annual interest rate earned by XYZ.(4 marks)
First, purchase price will be calculated.
Face value = 1,000,000
Yield rate = 6.95%
Time = 60 days
Hence profit is
Computation of interest:-
Simple interest is 7.158% and EAR is 7.533%