The discount on a 91-Treasury bill is 5.65%. What is the annually compounded rate of return?

Question

Quizplus · Accepted Answer

The annually compounded rate of return on a Treasury bill can be calculated using the following formula:

Annualized Rate of Return = (Face Value - Purchase Price) / Purchase Price x (360 / Days to Maturity)

Assuming a face value of $100, and using the information given, we can calculate the purchase price:

Discount = (Face Value - Purchase Price) / Face Value
0.0565 = (100 - Purchase Price) / 100
Purchase Price = $94.35

Plugging in the values, we get:

Annualized Rate of Return = (100 - 94.35) / 94.35 x (360 / 91) = 0.059 or 5.9%

Therefore, the answer is B.

The Discount on a 91-Treasury Bill Is 5