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Biti Bank purchase a $5,000 bond that pays 8% pa compounded half-yearly and is redeemable in exactly 13 years. The price paid will yield the bank 4% pa compounded half-yearly if held to maturity. Biti Bank hold this bond for 7 years before coming to a decision that the bond should be sold. They decide to sell to ZNZ Bank at 4.4% pa compounded half-yearly.
Problem 1: Calculate the price (PB) that Biti Bank paid to purchase the bond. Give your answer in dollars and cents to the nearest cent.
Problem 2: Calculate the price (PZ) that ZNZ Bank paid to purchase the bond. Give your answer in dollars and cents to the nearest cent.
Problem 3: Calculate the nominal annual yield compounded half-yearly that Biti Bank realised. You may give your answer as a percentage per annum to the nearest percent or use linear interpolation or a financial calculator to give a more accurate result.
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