Suppose you pay $9,700 for a $10,000 par Treasury bill maturing in three months.What is the holding period return for this investment?

Question

Quizplus · Accepted Answer

The holding period return can be calculated using the following formula:

HPR = (Ending value - Beginning value + Income) / Beginning value

In this case, the beginning value is the amount you paid for the Treasury bill ($9,700), the ending value is the par value of the bill ($10,000), and there is no income since T-bills do not pay interest.

Plugging in the numbers, we get:

HPR = ($10,000 - $9,700 + $0) / $9,700 = 0.03109 or 3.09%

Therefore, the correct answer is B.

Suppose You Pay $9,700 for a $10,000 Par Treasury Bill