A 180-day $500,000 banker's acceptance (BA) is currently trading at a discount of 3.75%. You purchase the BA today and sell it 90 days later when the three-month yield is 4.10%. What is your rate of return? Use 360-day to annualize. The following is true, except
A 180-day $500,000 banker's acceptance (BA) is currently trading at a discount of 3.75%. You purchase the BA today and sell it 90 days later when the three-month yield is 4.10%. What is your
The following is true, except
| A |
The price of the BA today is $490,625
|
|
| B |
The price of the BA 90 days from today is $494,875
|
|
| C |
Your rate of return is -3.46%
|
|
| D |
Your rate of return is 3.46%
|
Banker's acceptance is a type of security that would pay the par value at maturity. This instrument will be backed by a bank. The banker's acceptance can be traded at a discount.
The formula to determine the price of a banker's acceptance is as follows:
Where face value = $500,000
To determine the annual return we need to use the formula below:
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