A Treasury bill with a par value of $100,000 due two months from now is selling today for $98,039,with an effective annual yield of _________.

Question

Quizplus · Accepted Answer

First, we need to calculate the discount from the par value:

Discount = Par value - Market value
Discount = $100,000 - $98,039
Discount = $1,961

Next, we need to calculate the simple interest:

Simple Interest = Discount / Face value
Simple Interest = $1,961 / $100,000
Simple Interest = 0.01961

Finally, we need to annualize the simple interest:

Effective Annual Yield = (1 + Simple Interest)^(365 / days to maturity) - 1
Effective Annual Yield = (1 + 0.01961)^(365 / 60) - 1
Effective Annual Yield = 0.1262 or 12.62%

Therefore, the answer is C.

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