An 8% 13-week Treasury bill would have an effective interest rate of (to the nearest hundredth percent)? Assume it is a $10,000 Treasury bill.
A) 8.20%
B) 8.16%
C) 8.17%
D) 9.00%
E) None of these

Question

Quizplus · Accepted Answer

To calculate the effective interest rate, we need to use the following formula:

Effective Interest Rate = (Face Value - Purchase Price) / Purchase Price x (360 / days held)

Here, the face value is $10,000, and the Treasury bill is held for 13 weeks or 91 days. The purchase price can be calculated using the following formula:

Purchase Price = Face Value / (1 + (Discount Rate x days held / 360))

Substituting the given values, we get:

Purchase Price = $10,000 / (1 + (0.08 x 91 / 360)) = $9,821.40

Now, substituting all the values in the formula for effective interest rate, we get:

Effective Interest Rate = (10,000 - 9,821.40) / 9,821.40 x (360 / 91) = 0.0816 or 8.16%

Therefore, the best choice is B.

An 8% 13-Week Treasury Bill Would Have an Effective Interest