Using the elasticity approach,estimate the new price of a $100 000 90-day bank-accepted bill when the yield decreases from 9% to 7% p.a.

Question

Quizplus · Accepted Answer

The original price of the bill can be found by inserting the face value of $100 000,a yield of 9% and 90-day maturity into equation 5.1,page 138.This results in a price of $97 829.00.To estimate the price change from the change in yield involves application of equation 5.8,page 144.Using the original price of $97 829.00,an elasticity measure of -1 and a % change in (1 + yield)of 0.004824 results in an estimated price change of -471.92.Hence,the new estimated price is $97829.00 - 471.92 = $97357.08.

Using the Elasticity Approach,estimate the New Price of a $100 $97565.32 \$ 97 \quad 565.32 $97565.32

Using the Elasticity Approach,estimate the New Price of a $100 $\$ 97 \quad 565.32$