Reference no: EM132465429

Biti Bank purchase a $1,500 bond that pays 7% pa compounded half-yearly and is redeemable in exactly 14 years. The price paid will yield the bank 3% pa compounded half-yearly if held to maturity. Biti Bank hold this bond for 3 years before coming to a decision that the bond should be sold. They decide to sell to ZNZ Bank at 2.6% pa compounded half-yearly.

a) Calculate the price (P_B) that Biti Bank paid to purchase the bond. Give your answer in dollars and cents to the nearest cent.

b) Calculate the price (P_Z) that ZNZ Bank paid to purchase the bond. Give your answer in dollars and cents to the nearest cent.

c) 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.