Question
1. Joe purchases 100 nominal of a 9-month government bill which is issued at a compound rate of discount of 5.3% p.a. and is redeemable
1. Joe purchases 100 nominal of a 9-month government bill which is issued at a compound rate of discount of 5.3% p.a. and is redeemable at par. Joe sells the bill to Don after t months (0 < t < 9, t a real number) for a price of 97 and Don holds the bill until its maturity. a) Calculate the value of t if both Joe and Don earned the same annual simple rate of interest on their transactions. b) Calculate the annual compound rates of interest earned by Joe and Don on their transactions. c) Why do Joe and Don earn different rates of compound interest but the same rate of simple interest on their transactions?
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