Assume a $1,000 Treasury bill is quoted to pay 6% interest over a three-month period.What will be the price of the treasury bill?

Question

Quizplus · Accepted Answer

The first step is to calculate the discount rate of the Treasury bill using the formula:
Discount rate = (annual interest rate / 360) x days until maturity
In this case, the annual interest rate is 6% and the maturity is three months, or 91 days. Plugging in these values, we get:
Discount rate = (0.06 / 360) x 91 = 0.01515 or 1.515%
Next, we use the formula to calculate the price of the Treasury bill:
Price = face value / (1 + discount rate x days until maturity / 360)
Plugging in the values, we get:
Price = 1000 / (1 + 0.01515 x 91/360)
Price = $985.09 or approximately $985
Therefore, the best choice is D.

Assume a $1,000 Treasury Bill Is Quoted to Pay 6