Assume a $1,000 Treasury bill is quoted to pay 5 percent interest over a six-month period.
a. How much interest would the investor receive?
b. What will be the price of the Treasury bill?
c. What will be the effective yield?
Treasury bills are issued by the U.S government and their maturity range from a period of 4 weeks to 1 year. The price of the treasury bill is determined by subtracting the interest payable until maturity from the face value of the treasury bill.
Answer and Explanation:
Interest is calculated as,
- Interest = Principal * rate * time
- Interest = $1,000 * 5% * 6/12
- Interest = $25
Price of the...
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from Introduction to Business: Homework Help ResourceChapter 24 / Lesson 12