A 90-day bank bill that promises to pay $1 million at its maturity was issued 37 days ago. Calculate its price today if it is traded at a simple interest yield of 3.9% p.a. (Round your answer in dollars to 2 decimal places, e.g. put 1204.42 if your answer is 1204.4243.)
Question
A 90-day bank bill that promises to pay $1 million at its maturity was issued 37 days ago. Calculate its price today if it is traded at a simple interest yield of 3.9% p.a. (Round your answer in dollars to 2 decimal places, e.g. put 1204.42 if your answer is 1204.4243.)
Solution
To calculate the price of the bank bill today, we need to use the formula for the price of a bank bill, which is:
Price = Face Value / (1 + (yield * (remaining days/365)))
First, we need to calculate the remaining days until the bank bill matures. Since the bank bill has a maturity of 90 days and it was issued 37 days ago, the remaining days are 90 - 37 = 53 days.
Next, we plug the values into the formula:
Price = $1,000,000 / (1 + (0.039 * (53/365)))
Price = $1,000,000 / (1 + 0.0056)
Price = $1,000,000 / 1.0056
Price = $994,434.14
So, the price of the bank bill today is approximately $994,434.14.
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