You invested in a 90 day CD from Citizens Bank on 3/31/17. It had a stated interest rate of 3.6%, and you invested $200,000 in the CD.
(a) Calculate the payment due at maturity
(b) It is now 4/15/17. A broker offers you a price of 99.90 for the CD. If you sell the CD to the broker, what will be the proceeds that you will receive ?
(c) What is the money market yield on the security, given the price of 99.90 on 4/15/17 ?
At the time of maturity, principal along with interest will be payable.
Maturity Payment = principal + Interest
= $200,000 + Principal x rate x time
= $200,000 + $200,000 x 0.036 x 90/365
= 200,000+ 1775.34
Proceeds from CD = par value x % of price
= $200,000 x 99.90%
Yield on money market funds is for 7 days. Therefore, the yield would be
Yield = (P1/Po)^n -1
= (200,000/199800)^(365/7) -1
= 1.0536 -1
Therefore, annual yield would be 5.36%.