You purchase a 9 3/4s February $10,000 par Treasury note at 101:11 and hold it for exactly one year at which time you sell it. What is your rate of return if your selling price is 101:17?

Question

Quizplus · Accepted Answer

First, we need to convert the purchase price and selling price to decimal form:

Purchase price = 101:11 = 101 + 11/32 = 101.34375% 
Selling price = 101:17 = 101 + 17/32 = 101.53125%

Next, we can calculate the amount of interest earned:

Interest = (Selling Price - Purchase Price) x Par Value = (101.53125% - 101.34375%) x $10,000 = $18.75

To calculate the rate of return, we need to divide the interest earned by the initial investment (purchase price x par value):

Rate of return = Interest / (Purchase Price x Par Value) x 100% = $18.75 / (101.34375% x $10,000) x 100% = 0.0981 or 9.81%

Therefore, the correct answer is (D) 9.81 percent.

You Purchase a 9 3/4s February $10,000 Par Treasury Note