An 8% 13-week Treasury bill would have an effective interest rate of what (to the nearest hundredth percent)? Assume it is a $10,000 Treasury bill.
A)8.20%
B)8.16%
C)8.19%
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 * (365 / days until maturity) * 100%

Here, the face value is $10,000, the purchase price will be less than $10,000 (since the bill is sold at a discount), and the maturity is 13 weeks or 91 days.

To find the purchase price, we can use the following formula:

Purchase price = face value * (1 - discount rate * days until maturity / 365)

Plugging in the given numbers, we get:

Purchase price = $10,000 * (1 - 0.08 * 91 / 365) = $9,686.30

Now we can plug this into the first formula to get the effective interest rate:

Effective interest rate = ($10,000 - $9,686.30) / $9,686.30 * (365 / 91) * 100% = 8.16%

So the answer is B: 8.16%.

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