Question

In: Finance

Biti Bank purchase a $3,500 bond that pays 10% pa compounded half-yearly and is redeemable in...

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

PB = $

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

PZ =   $

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

Solutions

Expert Solution

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

PB = $5064.94

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

PZ =   $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

Please upvote if satisfied


Related Solutions

You just deposited $3,500 in a bank account that pays a 4.0% nominal interest rate, compounded...
You just deposited $3,500 in a bank account that pays a 4.0% nominal interest rate, compounded quarterly. If you also add another $5,000 to the account one year (4 quarters) from now and another $7,500 to the account two years (8 quarters) from now, how much will be in the account three years (12 quarters) from now?
Bank A pays 2% interest compounded annually on deposits, while Bank B pays 1.75% compounded daily....
Bank A pays 2% interest compounded annually on deposits, while Bank B pays 1.75% compounded daily. What would be the effective annual rate (EAR) that you would earn if you chose to deposit money in Bank B? Provide your answer in percentage format without using the % sign. Round to two decimal places.   To be marked correct, the answer provided needs to be +/- 0.01 from the actual answer.
Bank A pays 7% interest compounded annually on deposits, while Bank B pays 6% compounded daily....
Bank A pays 7% interest compounded annually on deposits, while Bank B pays 6% compounded daily. a. Based on the EAR (or EFF%), which bank should you use? You would choose Bank A because its EAR is higher. You would choose Bank B because its EAR is higher. You would choose Bank A because its nominal interest rate is higher. You would choose Bank B because its nominal interest rate is higher. You are indifferent between the banks and your...
Mr smith plans to deposit money in a bank that pays 10% interest per year, compounded...
Mr smith plans to deposit money in a bank that pays 10% interest per year, compounded daily. what the effective rate of interest will he receive (a) yearly, (b) semiannually? Answers (a) 10.515% (b) 5.0625%
A) Bank A offers a 2-year certificate of deposit (CD) that pays 10 percent compounded annually....
A) Bank A offers a 2-year certificate of deposit (CD) that pays 10 percent compounded annually. Bank B offers a 2-year CD that is compounded semi-annually. The CDs have identical risk. What is the APR that Bank B would have to offer to make its EAR equivalent to the CD at Bank A?
A $2000 bond is redeemable at 105 in 6 years. It pays semi-annual coupons at j2=...
A $2000 bond is redeemable at 105 in 6 years. It pays semi-annual coupons at j2= 10% and is bought to also yield j2= 10%. This bond sells at 
 Select one: a. a discount of $55.68 b. a premium of $55.68 c. a discount of $44.32 d. a premium of $44.32
What is the purchase price of a $15,000, 5.5% bond with monthly coupons redeemable in eight...
What is the purchase price of a $15,000, 5.5% bond with monthly coupons redeemable in eight years if the bond is bought to yield 4.5% compounded semi-annually?
A $1000 bond, redeemable at par, with annual coupons at 10% is purchased for $1050. If...
A $1000 bond, redeemable at par, with annual coupons at 10% is purchased for $1050. If the write-down in the book value is $20 at the end of the 1st year, what is the write-down at the end of the 4th year
South Central Bank pays 2.5 percent interest, compounded annually, on its savings accounts. Northern Bank pays...
South Central Bank pays 2.5 percent interest, compounded annually, on its savings accounts. Northern Bank pays 2.5 percent simple interest on its savings accounts. You want to deposit sufficient funds today so that you will have $1,500 in your account 2 years from today. The amount you must deposit today: will be greater if you invest with South Central Bank. is the same regardless of which bank you choose because they both pay the same rate of interest. is the...
A $5000 semi-annual coupon bond paying interest at 12.4%/year compounded semi-annually is redeemable at par in...
A $5000 semi-annual coupon bond paying interest at 12.4%/year compounded semi-annually is redeemable at par in 16 years. It is callable at 115 at the end of 8 years and at 111 at the end of 11 years. Determine the price to guarantee a yield rate of 13.4%/year compounded semi-annually.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT