A Treasury bill with a par value of $100,000 due one month from now is selling today for $99,010. The effective annual yield is

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Quizplus · Accepted Answer

The effective annual yield is the annual rate of return on an investment, taking into account the effect of compounding. The formula for the effective annual yield is:$$r = (1 + i/n)^n - 1$$where:* r is the effective annual yield* i is the nominal annual interest rate* n is the number of compounding periods per yearIn this case, the nominal annual interest rate is 0.99% (100,010/100,000 - 1). The number of compounding periods per year is 12 (since the Treasury bill is due in one month). Plugging these values into the formula, we get:$$r = (1 + 0.0099/12)^12 - 1 = 0.1268 = 12.68%$$Therefore, the effective annual yield is 12.68%.

A Treasury Bill with a Par Value of $100,000 Due