You have a choice between investing $10,000 in a CD that in six months will pay you $10,190 or investing $9,800 in a T-bill that in 182 days will return $10,000. Ignoring any opportunity cost between the two investments, which will give you the higher annualized return and what will the annualized return be?
A) T-bill; 2.2%
B) T-bill; 4.09%
C) CD; 3.8%
D) CD; 1.9%

Question

Quizplus · Accepted Answer

The T-bill offers a higher annualized return of 4.09%. To calculate the annualized return, you compare the return on investment over a year. For the T-bill, the return is $200 on a $9,800 investment over 182 days, which annualizes to approximately 4.09% [(200/9800) * (365/182)]. The CD's return is $190 on a $10,000 investment over 6 months, which annualizes to a lower rate.

You Have a Choice Between Investing $10,000 in a CD