# Solved Question: You invested in a 90 day CD from Citizens Bank on 3/31/17

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## Description

Question:

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 ?

Part A

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

= \$201,775.34

Part B

Proceeds from CD = par value x % of price

= \$200,000 x 99.90%

= \$199,800

Part C

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

= 5.36%

Therefore, annual yield would be 5.36%.

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