If a 90-day obligation is sold on a 2.5% quarterly bank discount basis, its effective, annual return is

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Quizplus · Accepted Answer

The effective annual return can be calculated using the formula for converting a bank discount rate to an effective annual yield. The quarterly bank discount rate is 2.5%, so the annual bank discount rate is 10% (2.5% * 4). The effective annual return is calculated as (1 - (discount rate/4))^-4 - 1, which results in approximately 10.7%.

If a 90-Day Obligation Is Sold on a 2