A Treasury bill with a par value of $100,000 due one month from now is selling today for $99,010.The effective annual yield is __________.

Question

Quizplus · Accepted Answer

First, we need to calculate the discount on the bill:

Discount = Par Value - Selling Price = $100,000 - $99,010 = $990

Next, we need to calculate the yield:

Yield = (Discount / Selling Price) * (360 / Days to Maturity)
      = ($990 / $99,010) * (360 / 30)
      = 0.1 * 12
      = 1.2

Finally, we convert the yield to an effective annual yield:

Effective Annual Yield = (1 + Yield/360)^360 - 1
                      = (1 + 0.012)^360 - 1
                      = 0.1268 or 12.68%

Therefore, the answer is D) 12.68%.

A Treasury Bill with a Par Value of $100,000 Due