Bruce bought a bank bill with a face value of $1 million, priced to yield 3.30 per cent per annum over the remaining 200 days until it matures. Bruce also sold a futures contract on a 90-day bank bill that expires in 110 days' time for the futures price of 96.55. Noting that the face value of the bill underlying these contracts is also $1 million, and that at the maturity of the futures contracts, the bank bill he holds will have 90-days to maturity, he decides to deliver the bank bill to close his short futures position. i) Identify the amount and timing of Bruce's net cash payments and receipts and ii) calculate the yield (simple interest, in percent per annum) he will achieve on his investment in the bank bill. (Ignore any cash flows from marking-to-market.)
Bruce bought a bank bill with a face value of $1 million, priced to yield 3.30 per cent per annum over the remaining 200 days until it matures. Bruce also sold a futures contract on a 90-day bank bill that expires in 110 days' time for the futures price of 96.55. Noting that the face value of the bill underlying these contracts is also $1 million, and that at the maturity of the futures contracts, the bank bill he holds will have 90-days to maturity, he decides to deliver the bank bill to close his short futures position. i) Identify the amount and timing of Bruce's net cash payments and receipts and ii) calculate the yield (simple interest, in percent per annum) he will achieve on his investment in the bank bill. (Ignore any cash flows from marking-to-market.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Bruce bought a bank bill with a face value of $1 million, priced to yield 3.30 per cent per annum over the remaining 200 days until it matures. Bruce also sold a futures contract on a 90-day bank bill that expires in 110 days' time for the futures price of 96.55. Noting that the face value of the bill underlying these contracts is also $1 million, and that at the maturity of the futures contracts, the bank bill he holds will have 90-days to maturity, he decides to deliver the bank bill to close his short futures position. i) Identify the amount and timing of Bruce's net cash payments and receipts and ii) calculate the yield (simple interest, in percent per annum) he will achieve on his investment in the bank bill. (Ignore any cash flows from marking-to-market.)
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