On 01.05 the company TGV acquired a 91-day certificate of deposit issued by PEKA
ID: 2614076 • Letter: O
Question
On 01.05 the company TGV acquired a 91-day certificate of deposit issued by PEKAO S.A. On 01.04 (date of issuance) the face value of the certificate was 1 000 000, coupon - 2,3%. The purchase price was calculated in a way to ensure that the company TGV, which planned to hold the certificate to maturity, could realize a yield on investment of 2,8% (ACT/365). On 18.05 it turned out that TGV experienced temporary liquidity problems. The CFO took the decision to sell the certificate. Please calculate the yield on investment for TGV, taking into account that on 18.05 the bank X which proposed to purchase the certificate offered the price of 1 001 559 PLN.
Explanation / Answer
Face Value 1000000 23000 Coupon 2.30% 2093000 YTM 2.80% 5734.247 No of days 91 days Int on certificate 1000000*2.30%*91/365 5734.25 Certificate purchase price = PV of int + PV of face value 5734.25/(1.028)^91/365 + 1000000/(1.028)^91/365 998833.68 Purchase price of certificate is 998833.68 Pln We have to now find the yield on investment if on 18.05.2018 the Bank X purchase the certificate Int for 18 days on the certificate = 1000000*0.023*18/365 1134.247 998833.68 = 1134.25/(1+r)^18/365 + 1001559/(1+r)^18/365 Assuming yield to maturity is 8.1344 we get 1134.25(1+0.081344)^18/365 + 1001559/(1+0.081344)^18/365 Hence yield to investment would be 8.1344%
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