Luke purchased a 180-day $500, 000 bank bill on 1 January 2019 at a yield rate of 3.18% p.a. (simple interest rate). He sold this bank bill on 15 April 2019 at a yield rate of 3.06% p.a. (simple interest rate).
– Draw a carefully labelled cash flow diagram to represent the above financial transaction. Draw your cash flow diagram from Luke’s perspective.
– Calculate the purchase price of the 180-day bank bill on 1 January 2019 (rounded to three decimal places) and the sale price of the 180-day bank bill on 15 April 2019 (rounded to three decimal places).
– Calculate Luke’s holding period yield (expressed as a percentage and rounded to two decimal places).
– Calculate the capital gain/loss component of the dollar return on the investment. (The “dollar return on the investment†means the difference between the sale price and the purchase price). Make sure you identify whether a capital gain or capital loss has been made. Round your answer to two decimal places. Please also explain why capital gain or loss has occurred.
-Assume that Luke borrowed money to purchase the bill at the price of $495, 000 at a interest rate of 3.3% and decided to sell the bank bill after 100 days. What price must the bill be sold after 100 days for Luke to break even on his investment (rounded to 2 decimal places)?
