Maryellen Epplin notices that a particular T-Bill has a banker's discount rate of 9 percent in the Wall Street Journal.She knows that this T-Bill has 20 days to maturity and has a face value of $10,000.
What price is this T-Bill selling for in the market?
A)$9,100
B)$10,000
C)$9,950
D)$1,900
E)None of the options is correct.

Question

Quizplus · Accepted Answer

The formula for banker's discount is:
Discount = Face Value * Banker's Discount Rate * Time
where time is expressed in terms of year fraction. 
Here, the time is 20/360 years (as it is a 20-day T-Bill), which is approximately 0.056. 
Substituting the given values in the formula, we get:
Discount = $10,000 * 0.09 * 0.056
Discount = $50.40
The price of the T-Bill is:

Price = Face Value - Discount
Price = $10,000 - $50.40
Price = $9,949.60

Rounding off to the nearest dollar, the answer is $9,950, which is option C.

Maryellen Epplin Notices That a Particular T-Bill Has a Banker's