QUESTION 3 [14 marks) Reynold, a celebrity chef and a restaurant owner, was forced to temporarily close his dessert bar from 1 April 2020 until 31 May 2020 (inclusive) due to the social distancing restrictions being imposed on all restaurants and bars in Australia as a result of Covid-19. With no other sources of income besides his restaurant, during the closure period Reynold lived off his savings and sold some of his existing assets to maintain the restaurant. After letting his staff take unpaid leave, the only fixed cost incurred to maintain his restaurant during the 2 months of close- down was rent ($105 000 was paid on 1 May 2020, i.e., 1 month after the start of the close-down period). Reynold purchased a 180-day $75 000 bank bill on 1 March 2020 at a yield rate of 5.50% p.a. (simple interest). After 62 days holding the bank bill, due to financial difficulties, he sold the bank bill 118 days early at a yield of 4.50% p.a. (simple interest) to pay for rent. [1 mark] Draw a carefully labelled cash flow diagram modelling the original bank bill purchase. Draw the cash flow diagram from Reynold's perspective. b. [2 marks] Calculate the original purchase price of the 180-day bank bill on 1 March 2020 (rounded to 3 decimal places). c. [2 marks] Calculate the sale price of the bank bill which Reynold re- ceived (rounded to 3 decimal places). Assume sale proceeds from the bank bill are $75 000 ($30 000 less than his payable rent). Reynold opened a new bank account with an $X initial bal- ance 1 month before the rent payment date to fully cover the rent short- fall. Assume his savings account earned interest of 2.40% p.a., compounding monthly. d. [3 marksDraw a carefully labelled cash flow diagram for the scenario described above. Draw the cash flow diagram from Reynold's perspec- tive. e. [2 marks] Calculate the $X from his savings that Reynold set aside one month before to cover the rent shortfall. f. [2 marks] Explain in words how your answer for part e would change if the interest on Reynold's savings account was 2.40% p.a., compounding annually (instead of monthly). QUESTION 3 [14 marks) Reynold, a celebrity chef and a restaurant owner, was forced to temporarily close his dessert bar from 1 April 2020 until 31 May 2020 (inclusive) due to the social distancing restrictions being imposed on all restaurants and bars in Australia as a result of Covid-19. With no other sources of income besides his restaurant, during the closure period Reynold lived off his savings and sold some of his existing assets to maintain the restaurant. After letting his staff take unpaid leave, the only fixed cost incurred to maintain his restaurant during the 2 months of close- down was rent ($105 000 was paid on 1 May 2020, i.e., 1 month after the start of the close-down period). Reynold purchased a 180-day $75 000 bank bill on 1 March 2020 at a yield rate of 5.50% p.a. (simple interest). After 62 days holding the bank bill, due to financial difficulties, he sold the bank bill 118 days early at a yield of 4.50% p.a. (simple interest) to pay for rent. [1 mark] Draw a carefully labelled cash flow diagram modelling the original bank bill purchase. Draw the cash flow diagram from Reynold's perspective. b. [2 marks] Calculate the original purchase price of the 180-day bank bill on 1 March 2020 (rounded to 3 decimal places). c. [2 marks] Calculate the sale price of the bank bill which Reynold re- ceived (rounded to 3 decimal places). Assume sale proceeds from the bank bill are $75 000 ($30 000 less than his payable rent). Reynold opened a new bank account with an $X initial bal- ance 1 month before the rent payment date to fully cover the rent short- fall. Assume his savings account earned interest of 2.40% p.a., compounding monthly. d. [3 marksDraw a carefully labelled cash flow diagram for the scenario described above. Draw the cash flow diagram from Reynold's perspec- tive. e. [2 marks] Calculate the $X from his savings that Reynold set aside one month before to cover the rent shortfall. f. [2 marks] Explain in words how your answer for part e would change if the interest on Reynold's savings account was 2.40% p.a., compounding annually (instead of monthly)
