Suppose you pay $9,400 for a $10,000 par Treasury bill maturing in six months.What is the effective annual rate of return for this investment?

Question

Quizplus · Accepted Answer

The effective annual rate of return can be calculated using the following formula:
Effective Annual Rate = ((Par Value - Purchase Price)/Purchase Price) x (365/days until maturity)

Substituting the given values, we get:
Effective Annual Rate = ((10,000 - 9,400)/9,400) x (365/180)
Effective Annual Rate = 0.0638 or 6.38%

Therefore, the correct answer is C) 13.17%.

Suppose You Pay $9,400 for a $10,000 Par Treasury Bill