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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)?


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