The discount on a 91-Treasury bill is 5.65 percent. What is the annually compounded rate of return? (Assume a 360-day discount basis.)

Question

Quizplus · Accepted Answer

To calculate the annually compounded rate of return, we can use the following formula:

Annual Compounded Rate of Return = [(Face Value / Market Price) ^ (360 / (Days to Maturity))] - 1

Here, the face value of the Treasury bill is 100 and the discount is 5.65 percent. So, the market price of the Treasury bill can be calculated as:

Market Price = Face Value - Discount
Market Price = 100 - (0.0565 x 100)
Market Price = 94.35

The days to maturity of the Treasury bill is not given in the question. Let's assume it's 91 days (since it's a 91-day Treasury bill). So, the annually compounded rate of return can be calculated as:

Annual Compounded Rate of Return = [(100 / 94.35) ^ (360 / 91)] - 1
Annual Compounded Rate of Return = 0.059 or 5.9%

Therefore, the answer is B) 5.9 percent.

The Discount on a 91-Treasury Bill Is 5