Question

Belinda purchased a 60-day $200,000 bank bill (at a simple interest rate) on 14 March 2022. The purchase price was $197,000. She sold this bank bill on 22 April 2022.

(b) Assume that Belinda sold this bank bill at a price of $197,800 and deposited all sale proceeds into an account to earn a simple interest rate of 2.05% p.a. up to the maturity date of the above bank bill. What is the annualised (simple interest) yield for this 60-day investment?

Answer 1

The annualized yield for Belinda's 60-day bank bill investment, after selling it and reinvesting the proceeds at a simple interest rate, is approximately 2.47%.

Step-by-step explanation:

To calculate the annualized yield on Belinda's 60-day investment in a bank bill, we need to first understand how much profit she made from her investment. Belinda bought the bank bill for $197,000 and sold it for $197,800, making a profit of $800. She then invested the proceeds at a simple interest rate of 2.05% per annum until the maturity date of the bank bill.

The formula to calculate the annualized yield for an investment is:

Annualized Yield = (Profit / Investment Amount) × (365 / Number of Days Invested)

Using this formula:

Annualized Yield = ($800 / $197,000) × (365 / 60) = 0.00406 × 6.0833 ≈ 0.0247 or 2.47%

This represents the rate at which the investment grows over a year, expressed as a percentage.