Reference no: EM133075661

Question - Jacob sold a futures contract on a 90-day bank bill that expires in 100 days' time for the futures price of 97.55. To ensure that he had a 90-day bank bill to deliver at expiry of the futures contract, Jacob purchased a 190-day bank bill at the same time. The bank bill Jacob bought had a face value of $1 million and was priced to yield 2.30 per cent per annum to maturity. Two days after Jacob established these positions, the Reserve Bank unexpectedly cut the cash rate target and market interest rates fell to 1.00% p.a.

If Jacob follows through with the plan to deliver the bank bill in satisfaction of the futures contract:

i) Identify the amount and timing of his net cash payments and receipts and

ii) Calculate the yield (simple interest, in percent per annum) Jacob will achieve from his investment in the bank bill.