Reference no: EM132843489

Question - 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.

a) Calculate the price (PB) that Biti Bank paid to purchase the bond.

b) Calculate the price (PZ) that ZNZ Bank paid to purchase the bond.

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.