Attempted solution:
Investor gives treasury £93 gets back a £100. so accumulation factor would have been 100/93=1.075268817
Investor sells to bank, and gets back £95.40. so accumulation factor would be 95.40/93=1.025806452 for investor
Bank, gets back £100. so accumulation factor would be 100/95.40=1.048218 for bank
Therefore, Bank gets a higher AER (effective rate of interest)
If what i did correct??? am guessing i didnt factor in time. it said something about 90 days and 40 days, but i dont no how to apply it. as i have always thought the Nominal rate should come with an interest rate value and p value (how often interest paid)
Last edited by a moderator: Nov 6, 2010