Question

Biti Bank purchase a $3,500 bond that pays 10% pa compounded half-yearly and is redeemable in exactly 12 years. The price paid will yield the bank 5% pa compounded half-yearly if held to maturity. Biti Bank hold this bond for 3 years before coming to a decision that the bond should be sold. They decide to sell to ZNZ Bank at 5.4% pa compounded half-yearly.

a)Calculate the price (P_B) that Biti Bank paid to purchase the bond. Give your answer in dollars and cents to the nearest cent.

P_B = $

b)Calculate the price (P_Z) that ZNZ Bank paid to purchase the bond. Give your answer in dollars and cents to the nearest cent.

P_Z =   $

c)Calculate the nominal annual yield compounded half-yearly that Biti Bank realised. You may give your answer as a percentage per annum to the nearest percent or use linear interpolation or a financial calculator to give a more accurate result.

Yield = % pa

Answer 1

a)Calculate the price (P_B) that Biti Bank paid to purchase the bond. Give your answer in dollars and cents to the nearest cent.

P_B = $5064.94

b)Calculate the price (P_Z) that ZNZ Bank paid to purchase the bond. Give your answer in dollars and cents to the nearest cent.

P_Z =   $4635.77

c)Calculate the nominal annual yield compounded half-yearly that Biti Bank realised. You may give your answer as a percentage per annum to the nearest percent or use linear interpolation or a financial calculator to give a more accurate result.

Yield = 4.23% per annum

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